Ethnic Investing and the Value of Firms

Jonas Hjort

No 16316, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study ethnic investing, using transaction data from Kenya’s stock exchange and CEO/board turnover. We show that a given investor invests more in a given firm when the firm is run by coethnics and earns lower risk-adjusted returns on such investments. We then model and empirically test for the aggregate impact of (i) the implied taste- or psychology-driven investor discrimination and (ii) counteracting demand- and supply-side forces. Our estimates imply that listed Kenyan firms could collectively be worth 37 percent more—with minority-run firms benefitting the most—if the neutral proportion of active investors increased from 4.2 to 50 percent.

Date: 2021-07
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