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Red and blue investing: Values and finance

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  • Hong, Harrison
  • Kostovetsky, Leonard
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    Abstract

    Using data on the political contributions and stock holdings of U.S. investment managers, we find that mutual fund managers who make campaign donations to Democrats hold less of their portfolios (relative to non-donors or Republican donors) in companies that are deemed socially irresponsible (e.g., tobacco, guns, or defense firms or companies with bad employee relations or diversity records). Although explicit socially responsible investing (SRI) funds are more likely to be managed by Democratic managers, this result holds for non-SRI funds and after controlling for other fund and manager characteristics. The effect is more than one-half of the underweighting observed for SRI funds.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X11000304
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 103 (2012)
    Issue (Month): 1 ()
    Pages: 1-19

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    Handle: RePEc:eee:jfinec:v:103:y:2012:i:1:p:1-19

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Mutual funds; Political values; Portfolio decisions; SRI;

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    Cited by:
    1. Sajjad Zaheer & Steven Ongena & Sweder van Wijnbergen, 0000. "The Transmission of Monetary Policy through Conventional and Islamic Banks," Tinbergen Institute Discussion Papers 12-048/2, Tinbergen Institute.
    2. Kim, Incheol & Pantzalis, Christos & Park, Jung Chul, 2013. "Corporate boards' political ideology diversity and firm performance," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 223-240.
    3. Leite, Paulo & Cortez, Maria CĂ©u, 2014. "Style and performance of international socially responsible funds in Europe," Research in International Business and Finance, Elsevier, vol. 30(C), pages 248-267.
    4. Minnick, Kristina & Rosenthal, Leonard, 2014. "Stealth compensation: Do CEOs increase their pay by influencing dividend policy?," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 435-454.
    5. Bonaparte, Yosef & Kumar, Alok, 2013. "Political activism, information costs, and stock market participation," Journal of Financial Economics, Elsevier, vol. 107(3), pages 760-786.
    6. Arno Riedl & Paul Smeets, 2013. "Social Preferences and Portfolio Choice," CESifo Working Paper Series 4403, CESifo Group Munich.
    7. Durand, Robert B. & Koh, SzeKee & Tan, Paul LiJian, 2013. "The price of sin in the Pacific-Basin," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 899-913.
    8. Leventis, Stergios & Hasan, Iftekhar & Dedoulis , Emmanouil, 2013. "The cost of sin: The effect of social norms on audit pricing," Research Discussion Papers 13/2013, Bank of Finland.
    9. Borgers, Arian & Derwall, Jeroen & Koedijk, Kees & ter Horst, Jenke, 2013. "Stakeholder relations and stock returns: On errors in investors' expectations and learning," Journal of Empirical Finance, Elsevier, vol. 22(C), pages 159-175.
    10. Di Giuli, Alberta & Kostovetsky, Leonard, 2014. "Are red or blue companies more likely to go green? Politics and corporate social responsibility," Journal of Financial Economics, Elsevier, vol. 111(1), pages 158-180.
    11. Matthew Hood & John Nofsinger & Abhishek Varma, 2014. "Conservation, Discrimination, and Salvation: Investors’ Social Concerns in the Stock Market," Journal of Financial Services Research, Springer, vol. 45(1), pages 5-37, February.
    12. Everett, Craig R., 2013. "Measuring the social responsibility discount for the cost of equity capital: evidence from benefit corporations," MPRA Paper 55441, University Library of Munich, Germany.

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