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The Wages of Social Responsibility

35 Pages Posted: 3 Apr 2009  

Meir Statman

Santa Clara University - Department of Finance

Denys Glushkov

University of Pennsylvania - The Wharton School, Wharton Research Data Services (WRDS); Acadian Asset Management LLC

Date Written: December 26, 2008

Abstract

Typical socially responsible investors tilt their portfolios toward stocks of companies with high scores on social responsibility characteristics such as community, employee relations and the environment. We analyze returns during 1992-2007 of stocks rated on social responsibility by KLD and find that this tilt gave socially responsible investors a return advantage relative to conventional investors. However, typical socially responsible investors also shun stocks of companies associated with tobacco, alcohol, gambling, firearms, military, and nuclear operations. We find that such shunning brought to socially responsible investors a return disadvantage relative to conventional investors. The return advantage of tilts toward stocks of companies with high social responsibility scores is largely offset by the return disadvantage that comes from the exclusion of stocks of 'shunned' companies. The return of the DS 400 Index of socially responsible companies was approximately equal to the return of the S&P 500 Index of conventional companies.

Socially responsible investors can do both well and good by adopting the best-in-class method in the construction of their portfolios. That method calls for tilts toward stocks of companies with high scores on social responsibility characteristics, but refrains from calls to shun the stock of any company, even one that produces tobacco.

Keywords: socially responsible investing, behavioral finance, market efficiency, sin stocks, environment, employee relations, governance

JEL Classification: G11, G12, G14

Suggested Citation

Statman, Meir and Glushkov, Denys, The Wages of Social Responsibility (December 26, 2008). Available at SSRN: https://ssrn.com/abstract=1372848 or http://dx.doi.org/10.2139/ssrn.1372848

Meir Statman (Contact Author)

Santa Clara University - Department of Finance ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4147 (Phone)
408-554-4029 (Fax)

Denys Glushkov

University of Pennsylvania - The Wharton School, Wharton Research Data Services (WRDS) ( email )

WRDS, St. Leonard's Court
3819 Chestnut St, suite 300
Philadelphia, PA 19104
United States
2158986705 (Phone)

HOME PAGE: http://ssrn.com/author=664253

Acadian Asset Management LLC ( email )

260 Franklin Street
Boston, MA 02110
United States

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