Corporate Ethical Behaviours and Firm Equity Value and Ownership: Evidence from the GPFG's Ethical Exclusions

Abstract

This paper investigates the implications for firm equity value and ownership structure when a large institutional investor publicly divests a firm due to unethical behaviour. To achieve this, it makes use of the GPFG's ethical exclusions. On average, firms lose 1.48% of equity value around exclusion announcements, which is not reversed in the short term. The effect is stronger for more liquid firms. For firms excluded under the product criteria, especially coal, the effect seems to be driven by the divesting behaviour of ethics sensitive investors.

Keywords: ethical investing, equity value, clientele change, ethical behaviour, institutional investors, sovereign wealth funds, sin stocks

JEL Classification: G11, G14, G23, G31, M14