How Do Socially Controversial Companies Do During a Stressful Time?: Evidence From the Great Recession
30 Pages Posted: 2 Jan 2019
Date Written: December 17, 2018
This study investigates the performance of socially controversial companies during a financial crisis. Companies are usually considered controversial if they are involved in controversial businesses such as alcohol, tobacco, firearms, nuclear etc. The results show that controversial firms exhibit higher firm value as well as better accounting performance during the Great Recession than otherwise similar, albeit non-controversial, firms. The results are consistent with the notion that the demand for controversial products remains relatively stable even during a stressful time. Further analysis confirms the results, including random-effects analysis, GMM dynamic panel data analysis, and instrumental-variable (IV) analysis. The results of this paper are particularly relevant to portfolio management, where controversial firms may be added to portfolios to inoculate them from a negative shock brought about by an economic crisis.
Keywords: Sin Stocks, Controversial Stocks, Financial Crisis, Great Recession
JEL Classification: G32, M14
Suggested Citation: Suggested Citation