Spreading the sin: An empirical assessment from corporate takeovers

Marco Guidi, Vasilios Sogiakas, Evangelos Vagenas-Nanos and Patrick Verwijmeren

International Review of Financial Analysis, 2020, vol. 71, issue C

Abstract: An acquisition of a company involved in socially undesirable activities can have important value implications. On the one hand, stocks in sin industries can be undervalued, and positive wealth effects might be created through risk sharing and a halo effect. On the other hand, acquiring sin stocks could increase litigation risk and the chance of product boycotts, and could hurt relations with employees and other stakeholders. Moreover, many investors avoid investments in sin stocks by applying negative screening. This article empirically establishes that shareholders of acquirer firms on average discount sin acquisitions. The negative wealth effects are stronger in countries with a greater focus on corporate social responsibility and for deals that are more likely to receive public attention. The article concludes that the costs of “sin” are considerable.

Keywords: Corporate social responsibility; Socially responsible investing; Mergers and acquisitions; Sin stocks (search for similar items in EconPapers)
JEL-codes: G14 G30 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301794

DOI: 10.1016/j.irfa.2020.101535

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