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Divest, Disregard, or Double Down? Philanthropic Endowment Investments in Objectionable Firms

Brigitte Roth Tran

American Economic Review: Insights, 2019, vol. 1, issue 2, 241-56

Abstract: How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? I offer the first model characterizing this type of investment decision. I introduce a strategy called "mission hedging," where—in contrast to traditional socially responsible investing—foundations may benefit from skewing investment toward the objectionable firm in order to align funding availability with need. I characterize the trade-offs driving foundation investment decisions. By leveraging the idiosyncratic firm risk typically diversified away in profit-maximizing portfolios, foundations may find that bad actors provide good opportunities to hedge mission-specific risks.

JEL-codes: G11 G14 L31 M14 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aeri.20180347
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Handle: RePEc:aea:aerins:v:1:y:2019:i:2:p:241-56