The Effect of Social Norms on Sin Stock Performance
Stephanie Lu Wang and Susan L. Young
Coles Working Paper Series, SPRING18-06, March 2018
Overview The current negative perception of sin stocks, or stocks of companies involved in gambling, tobacco, or alcohol, evolved over the last century. Much of the literature assumes that once legitimacy criteria are established, they are static and that definitions of desirable or appropriate behavior are clear. Although prior research suggests that both institutional pressure and organizational efforts shape firms’ legitimacy, few have examined whether these effects persist or decay over the long term. Using the “Triumvirate of Sin” industries as a natural experiment, we examined how a sample of 148 stocks from 1978 to 2014 responded to changing social norms in the context of institutional theory. We found that when social norms against smoking, drinking, and gambling are high, sin stocks have lower than expected value, but firms can employ different strategies to mitigate damage to their legitimacy and improve performance; specifically, by engaging in corporate philanthropy as a distracting technique or decoupling themselves from perceived illegitimacy by diversifying into “non-sin” industries.
28 | Working Papers
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