Article
The Financial Performance of SRI Excluded Firms
Journal of the Academy of Finance
(2008)
Abstract
Socially Responsible Investments (SRI) can be characterized as ‘negative
screening’: investors eliminate certain firms from consideration based not on perceived
performance but on inappropriate behavior (labor issues or support of same sex unions
for example) or for products considered inappropriate for society (alcohol and tobacco for
example). There have been a large number of studies examining the effect of this
negative filter on investment performance, but little research on the operational impact on
a firm of being systematically excluded by SRI investors. This paper examines what
financial consequences, if any, occur if a firm is excluded by a large number of SRI
funds. We find that debt ratios, profit margins, operating costs, and cash positions of
SRI-excluded firms are affected. These excluded firms tend to use more debt, hold
higher cash positions, and have higher profit margins and lower operating costs than
similar, non-excluded firms.
Disciplines
Publication Date
Fall 2008
Citation Information
Thomas D Berry and Joan Junkus. "The Financial Performance of SRI Excluded Firms" Journal of the Academy of Finance Vol. 6 Iss. 2 (2008) p. 10 - 17 Available at: http://works.bepress.com/thomas_berry/32/