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Divest, Disregard, or Double Down?

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Abstract

How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? Endowments typically disregard the objectionable nature of or divest from such firms. However, if firm returns increase with activities the endowment combats, doubling down on the investment increases expected utility by aligning funding availability with need. I call this \"mission hedging.\" This paper offers the first model that characterizes the endowment's investment decision on the objectionable firm, defines investment trade-offs, and examines related evidence. Bad actors provide good opportunities to hedge mission-specific risks.

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  • Brigitte Roth Tran, 2017. "Divest, Disregard, or Double Down?," Finance and Economics Discussion Series 2017-042, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2017-42
    DOI: 10.17016/FEDS.2017.042
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    1. Ning Ding & Jerry T. Parwada & Jianfeng Shen & Shan Zhou, 2020. "When Does a Stock Boycott Work? Evidence from a Clinical Study of the Sudan Divestment Campaign," Journal of Business Ethics, Springer, vol. 163(3), pages 507-527, May.

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    More about this item

    Keywords

    Socially responsible investing; Divestment; Endowment; Foundation; Philanthropy; Portfolio; Universities and colleges;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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