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Does sin matter in corporate governance issues in the United States

Hanene Ezzine (ESC Sfax University, Sfax, Tunisia)
Bernard Olivero (Institute of Business Administration of Nice, Nice University, France)

International Journal of Islamic and Middle Eastern Finance and Management

ISSN: 1753-8394

Article publication date: 12 April 2018

Issue publication date: 9 August 2018

369

Abstract

Purpose

The authors provide evidence for the effects of social norms on corporate governance risk by studying “sin” stocks publicly traded companies involved in producing alcohol, firearms, biotechnology, gambling, military, nuclear power and tobacco. There is a societal norm against funding operations that promote vice and expropriation by controlling shareholders.

Design/methodology/approach

The sample is representative of S&P 500 firms in 2014. The authors use Datastream to obtain a sample of sin stocks. The authors’ descriptive analysis is completed by four variations of the basic ordinary least squares regression model according to dependent variable corporate governance risk score.

Findings

The authors find that non-financial incentives alone do not explain corporate governance risk. The authors provide strong empirical support for an alignment of financial and non-financial incentives. The authors show that when sin firm’s current performance is good, suggesting that the market holds a positive belief in firm’s future profitability, managers will likely have more incentive to expropriate shareholders.

Research limitations/implications

Belonging of firm to a sin industry does not reflect the acceptance level of social norms. The evolution of social norms towards sin stocks overcomes the drawback of assuming a constant social norms level over time. Therefore, researchers are encouraged to use the changes in consumption of sin products as a proxy for the evolution of social norms and examine does sin matter in corporate governance issue in other countries.

Practical implications

Well-planned and well-managed philanthropy sin industries to creating education programmes for the disadvantaged to protecting the environment, in the name of corporate social responsibility has become a necessary ingredient in virtually every large corporation’s business plan.

Originality/value

This paper fulfils an identified need to study does sin matter issue in corporate governance issue.

Keywords

Citation

Ezzine, H. and Olivero, B. (2018), "Does sin matter in corporate governance issues in the United States", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 11 No. 3, pp. 449-469. https://doi.org/10.1108/IMEFM-06-2017-0151

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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