Our study considers whether ethical investments are also good investments. In contrast with previous studies, we utilize long-run event study methodology to examine abnormal returns associated with firms being included in, and dropped from, the MSCI KLD400 Social Index (MSCI KLD400). We find that there are positive and statistically significant long-run abnormal returns for firms being included in the MSCI KLD400. These abnormal returns are associated with higher shareholdings by institutional investors (who are subject to higher public scrutiny), higher analyst coverage and higher growth opportunities.
BachooKTanRWilsonM (2013) Firm value and the quality of sustainability reporting in Australia. Australian Accounting Review23: 67–87.
4.
BarberBLyonJ (1997) Detecting long-run abnormal stock returns: The empirical power and specification of test statistics. Journal of Financial Economics43: 341–372.
5.
BauerRDerwallJOttenR (2007) The ethical mutual fund performance debate: New evidence from Canada. Journal of Business Ethics70: 111–124.
6.
BauerRKoedijkKOttenR (2005) International evidence on ethical mutual fund performance and investment style. Journal of Banking & Finance29: 1751–1767.
7.
BauerROttenRTourani-RadA (2006) Ethical investing in Australia: Is there an ethical penalty?Pacific-Basin Finance Journal14: 33–48.
8.
BeneishMWhaleyR (1996) An anatomy of the ‘S&P Game’: The effects of changing the rules. Journal of Finance51: 1909–1930.
9.
BensonKBrailsfordTHumphreyJ (2006) Do socially responsible fund managers really invest differently?Journal of Business Ethics65: 337–357.
10.
BirdRMomentéFReggianiF (2012) The market acceptance of corporate social responsibility: A comparison across six countries/regions. Australian Journal of Management37: 153–168.
11.
BrammerSBrooksCPavelinS (2006) Corporate social performance and stock returns: UK evidence from disaggregate measures. Financial Management35: 97–116.
12.
CarhartM (1997) On persistence in mutual fund performance. Journal of Finance52: 57–82.
13.
ChongJHerMPhillipsG (2006) To sin or not to sin? Now that’s the question. Journal of Asset Management6: 406–417.
14.
ChungKJoH (1996) The impact of security analysts’ monitoring and marketing functions on the market value of firms. Journal of Financial and Quantitative Analysis31: 493–512.
15.
ClarksonPOverellMChappleL (2011) Environmental reporting and its relation to corporate environmental performance. Abacus47: 27–60.
16.
CortezMSilvaFArealN (2009) The performance of European socially responsible funds. Journal of Business Ethics87: 573–588.
17.
DaviesN (1997) Europe: A History. London: Pimlico Publishers.
18.
DerwallJGuensterNBauerR. (2005) The eco-efficiency premium puzzle. Financial Analysts Journal61: 51–63.
19.
DockingDDowenR (2006) Evidence on stock price effects associated with changes in the S&P 600 SmallCap Index. Quarterly Journal of Business and Economics45: 89–114.
20.
DurandRKohSLimkriangkraiM (2013a) Saints versus sinners. Does morality matter?Journal of International Financial Markets, Institutions and Money24: 166–183.
21.
DurandRKohSTanP (2013b) The price of sin in the Pacific-Basin. Pacific-Basin Finance Journal21: 899–913.
22.
EdmansA (2011) Does the stock market fully value intangibles? Employee satisfaction and equity prices. Journal of Financial Economics101: 621–640.
23.
FamaEFrenchK (1993) Common risk factors in the returns on of stocks and bonds. Journal of Financial Economics33: 3–56.
24.
FrazziniALamontO (2008) Dumb money: Mutual fund flows and the cross-section of stock returns. Journal of Financial Economics88: 299–322.
25.
GeczyCStambaughRLevinD (2005) Investing in socially responsible mutual funds. Working paper, University of Pennsylvania, Philadelphia, PA.
26.
GoetzmannWJorionP (1993) Testing the predictive power of dividend yields. Journal of Finance48: 663–679.
27.
HongHKacperczykM (2009) The price of sin, the effects of social norms on markets. Journal of Financial Economics93: 15–36.
28.
JainP (1987) The effect on stock price of inclusion in or exclusion from the S&P 500. Financial Analysts Journal43: 58–65.
29.
JensenM (1986) Agency costs of free cash flow, corporate finance and takeovers. American Economic Review76: 323–329.
30.
JoHHarjotoM (2011) Corporate governance and CSR Nexus. Journal of Business Ethics100: 45–67.
31.
JohnsonN (1978) Modified t tests and confidence intervals for asymmetrical populations. Journal of the American Statistical Association73: 536–544.
32.
JonesSvan der LaanSFrostG. (2008) The investment performance of socially responsible investment funds in Australia. Journal of Business Ethics80: 181–203.
33.
KeynesJ (1936) The General Theory of Employment, Interest and Money. London: Macmillan.
34.
LeeDFaffRLangfield-SmithK (2009) Revisiting the vexing question: Does superior corporate social performance lead to improved financial performance. Australian Journal of Management34: 21–49.
35.
LeeDHumphreyJBensonK. (2010) Socially responsible investment fund performance: The impact of screening intensity. Accounting and Finance50: 351–370.
36.
LyonJBarberBTsaiC (1999) Improved methods for tests of long-run abnormal stock returns. Journal of Finance54: 165–201.
37.
McGuireJSundgrenASchneeweisT (1988) Corporate social responsibility and firm financial performance. Academy of Management Journal31: 854–872.
38.
MahoneyLRobertsR (2007) Corporate social performance, financial performance and institutional ownership in Canadian firms. Accounting Forum31: 233–253.
39.
MertonR (1987) A simple model of capital market equilibrium with incomplete information. Journal of Finance42: 483–510.
40.
MitchellMStaffordE (2000) Managerial decisions and long-term stock performance. Journal of Business73: 287–329.
MyersS (1977) Determinants of corporate borrowing. Journal of Financial Economics5: 147–175.
43.
OoiELajbcygierP (2013) Virtue remains after removing sin: Finding skill amongst socially responsible investment managers. Journal of Business Ethics113: 199–224.
44.
OrlitzkyMSchmidtFRynesS (2003) Corporate social and financial performance: A meta-analysis. Organization Studies24: 403–441.
45.
Pérez-GladishBBensonKFaffR (2012) Profiling socially responsible investors: Australian evidence. Australian Journal of Management37: 189–209.
46.
PorterMKramerM (2006) Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business Review84: 78–92.
47.
RenneboogLTer HorstJZhangC (2008) Socially responsible investments: Institutional aspects, performance, and investor behavior. Journal of Banking & Finance32: 1723–1742.
48.
RollR (1981) A possible explanation of the small firm effect. Journal of Finance36: 879–888.
49.
ScholesM (1972) The market for securities: Substitution versus price pressure and the effects of information on share prices. Journal of Business45: 179–211.
50.
ShleiferAVishnyR (1986) Large shareholders and corporate control. Journal of Political Economy94: 461–488.
51.
SiegelSCastellanN (1988) Nonparametric Statistics for the Behavioral Sciences. New York: McGraw-Hill.
52.
SIF (2006) 2005 Report on socially responsible investing trends in the United States. Washington: Social Investment Forum.
StatmanM (2006) Socially responsible indexes: Composition, performance and tracking error. Journal of Portfolio Management32: 100–109.
55.
SuttonC (1993) Computer-intensive methods for tests about the mean of an asymmetrical distribution. Journal of the American Statistical Association88: 802–808.
56.
TurbanDGreeningD (1997) Corporate social performance and organizational attractiveness to prospective employees. Academy of Management Journal40: 658–672.
57.
United Nations Environment Programme Finance Initiative (UNEP FI), Mercer (2007) Demystifying responsible investment performance: A review of key academic and broker research on ESG factors. Joint report by UNEP FI and Mercer, October2007. The Asset Management Working Group of the United Nations Environment Programme Finance Initiative and Mercer.
