Do Tobacco Share Owners Finance the Tobacco Business?

24 Pages Posted: 28 May 2020 Last revised: 7 Aug 2020

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Date Written: July 31, 2020


Many investors do not want to finance morally objectionable activities with their money, such as smoking. But is investing in the shares of tobacco companies the same as financing the tobacco business? Analyzing two decades of data we find that investors in tobacco shares have not provided any fresh capital to tobacco firms for expanding their operations, so the buying or selling of tobacco shares is just a financial exchange and a transfer of ownership between two investors. We do find evidence for capital flows in the opposite direction, namely tobacco companies repurchasing their own shares in the open market. Our results suggest that divesting from tobacco stocks is ineffective at improving public health or at increasing the cost of capital of tobacco firms, while investors lose the right to vote and initiate proposals at shareholder meetings. We conclude that sustainable investors may wish to differentiate their policies depending on the external financing needs of companies.

Keywords: Cost-of-capital, ESG investing, Portfolio management, Sin stocks, Sustainability, Tobacco

JEL Classification: G11, G15, G23, G32

Suggested Citation

Blitz, David and Swinkels, Laurens, Do Tobacco Share Owners Finance the Tobacco Business? (July 31, 2020). Available at SSRN: or

David Blitz

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA

Laurens Swinkels (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

Robeco Quantitative Investments ( email )

Rotterdam, 3000
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

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