Is Sin Always a Sin? The Interaction of Social Norms and Financial Performance on Market Participants’ Behavior

56 Pages Posted: 17 Aug 2010

See all articles by Yanju Liu

Yanju Liu

University of Toronto - Rotman School of Management

Hai Lu

University of Toronto - Rotman School of Management

Kevin J. Veenstra

McMaster University - DeGroote School of Business

Date Written: August 16, 2010

Abstract

Using time series consumption data of alcohol, tobacco, and gaming (“sin” products) to proxy for social norm acceptance,, we examine how social norms affect the decisions of investment professionals and managers of these “sin” companies. We find that institutional investors’ shareholdings and analyst coverage of “sin” companies are increasing in the degree of social acceptance and that, ceteris paribus, the amount of shareholdings/coverage is more pronounced for firms with higher future expected performance. We also show that managers’ opportunistic behavior, proxied by discretionary accruals and analyst meet-or-beat frequencies, is negatively related to the extent of social norm acceptance and that the degree of opportunism is more pronounced in the years with poor financial performance. Taken together, these results suggest that social norm levels play a key role in the decision making process and that financial performance has a powerful interaction effect, resulting in social norms being crossed when motive and opportunity exist.

Keywords: Corporate social responsibility, social norms, sin stocks

JEL Classification: M41, D71, G11

Suggested Citation

Liu, Yanju and Lu, Hai and Veenstra, Kevin J., Is Sin Always a Sin? The Interaction of Social Norms and Financial Performance on Market Participants’ Behavior (August 16, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1659781 or http://dx.doi.org/10.2139/ssrn.1659781

Yanju Liu

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Hai Lu (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Kevin J. Veenstra

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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