An acquisition of a company involved in socially undesirable activities can have important value implications. On the one hand, stocks in sin industries can be undervalued, and positive wealth effects might be created through risk sharing and a halo effect. On the other hand, acquiring sin stocks could increase litigation risk and the chance of product boycotts, and could hurt relations with employees and other stakeholders. Moreover, many investors avoid investments in sin stocks by applying negative screening. This article empirically establishes that shareholders of acquirer firms on average discount sin acquisitions. The negative wealth effects are stronger in countries with a greater focus on corporate social responsibility and for deals that are more likely to receive public attention. The article concludes that the costs of “sin” are considerable.

Additional Metadata
Keywords Corporate social responsibility, Mergers and acquisitions, Sin stocks, Socially responsible investing
JEL Corporate Finance and Governance: General (jel G30), Mergers; Acquisitions; Restructuring; Corporate Governance (jel G34), Information and Market Efficiency; Event Studies (jel G14)
Persistent URL dx.doi.org/10.1016/j.irfa.2020.101535, hdl.handle.net/1765/128190
Journal International Review of Financial Analysis
Citation
Guidi, M. (Marco), Sogiakas, V. (Vasilios), Vagenas-Nanos, E, & Verwijmeren, P. (2020). Spreading the sin: An empirical assessment from corporate takeovers. International Review of Financial Analysis, 71. doi:10.1016/j.irfa.2020.101535