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Do Ethical Companies Have High Stock Prices or High Returns?

Author

Listed:
  • Bing Yu

    (School of Business, Meredith College, 3800 Hillsborough St., Raleigh, NC 27607, USA)

  • Shengxiong Wu

    (School of Business, Texas Wesleyan University, Fort Worth, TX 76105, USA)

  • Mary Jane Lenard

    (School of Business, Meredith College, 3800 Hillsborough St., Raleigh, NC 27607, USA)

Abstract

In this paper, we examine the performance of an impact investing strategy using the most ethical companies to build an impact investing portfolio. We test the time-series and cross-sectional returns of the impact portfolio, explore the financial analyst coverage of the most ethical firms, and run regressions to analyze the valuation of the most ethical firms. Our empirical results reveal that the portfolio consisting of the most ethical firms has a higher risk-adjusted return and that the most ethical firms have lower stock valuations than comparable stocks. We attribute our findings to the incomplete information in business ethics norms.

Suggested Citation

  • Bing Yu & Shengxiong Wu & Mary Jane Lenard, 2022. "Do Ethical Companies Have High Stock Prices or High Returns?," JRFM, MDPI, vol. 15(2), pages 1-15, February.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:2:p:81-:d:749258
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    References listed on IDEAS

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