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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Pacific-Basin Finance Journal, Volume 21, Issue 1, January 2013, Pages 899–913
Hong and Kacperczyk (2009) argue that social norms against sin stocks influence investor behavior and corporate financial policies. This paper examines “sin” stocks in seven Pacific-Basin markets that exhibit a variety of social norms: Australia, India, Japan, South Korea, Malaysia, New Zealand and Singapore. In doing so, we provide further evidence on the pricing of sin stocks. Consideration of measurable cultural differences between the markets suggests the price of sin is a manifestation of groupthink.
Hong and Kacperczyk (2009) (HK) argue that social norms – where the utility of actions is determined by the belief and actions of others (Akerlof, 1980) – drive both investor behavior and corporate financial policies. Focusing on American “sin” stocks (publicly traded firms involved in alcohol, tobacco or gaming) they find that these (sin) stocks form a lower proportion of the portfolios of “norm-constrained” institutions.1 HK find that sin stocks are relatively undervalued and that they have higher risk-adjusted returns ceteris paribus. HK explore an interesting corollary to their finding that sin stocks are shunned by norm-constrained institutions. They consider if the financial policies of norm-constrained institutions might be associated with sin stocks facing increased difficulty in tapping equity markets. HK find evidence that sin stocks are more likely to rely on debt financing: debt markets are less open to public scrutiny than equity markets and it is therefore less difficult for sin stocks to borrow than to issue equity.2 It may be that the pressure of social norms is felt particularly keenly by investors in the US market. HK suggest that social norms might also influence investors outside the US. While their US analysis considers a broad range of variables which might be influenced by social norms, HK only extended their study to the returns of sin stocks in a number of countries: Canada, France, Germany, Italy, Netherlands, Spain, Switzerland and the UK. Due to the relatively low number of sin stocks available to them,3 they group the stocks from these countries into one portfolio. They find that the returns of this portfolio of sin stocks are also higher than other stocks, ceteris paribus. These countries are all Western countries with much in common with the US. If social norms influence investment, then we might expect to find the results reported in HK also apply to markets and cultures which are broadly similar to the US. For example, in the Pacific-Basin, we might expect investors' attitudes to sin stocks in Australia and New Zealand to be much the same as what HK observe in the US. We do not know if HK's findings apply to markets and cultures which are different from the US. In this paper, we replicate and extend HK's analysis in seven Pacific-Basin markets: Australia, India, Japan, South Korea, Malaysia, New Zealand and Singapore. HK's findings and hypotheses are built around the notion of social norms. We find results broadly in keeping with HK in the markets which we suspect are culturally akin to the US: Australia and New Zealand. When HK's approach is applied to other markets, however, we find different, but prima facie systematic, responses to sin stocks. These different responses are consistent with social norms driving investor behavior. The differences we find are consistent with different social norms pertaining in the countries which are culturally different to the US. Further, our findings appear to be related to measurable cultural factors; this allows us to make some suggestions about the pricing of sin stocks in the markets we examine. We reconcile the differences between the markets we examine to those examined in HK by suggesting that price of sin is a manifestation of groupthink. The social-norms hypothesis in HK implies that moral constraints will drive investors toward certain behavior. That is, investors herd. It may be serendipitous that American investors, and investors from cultures similar to America's, herd toward virtuous investment behavior consistent with American social norms. In HK, the herding is driven by individual investors putting pressure on professional money managers. Professional money managers, however, also appear to be influenced by their personal values. Hong and Kostovetsky (2012) demonstrate that political biases of fund managers affect their allocation of the funds they manage to “sin” stocks. Social norms, as articulated in HK, imply pressure to conform to society's notions of virtue; a society's values and norms are an aspect of its culture. The Oxford English Dictionary defines culture as “the distinctive ideas, customs, social behavior, products, or way of life of a particular society, people, or period. Hence: a society or group characterized by such customs.”4 Work in Finance, however, has utilized the notion that culture involves transferral of something; for example, “…culture is defined as transmission from one generation to the next, via teaching and imitation, of knowledge, values, and other factors that influence behavior” (Stulz and Williamson, 2003, p. 314).5Siegel et al. (2011) argue that cultures differ in their egalitarianism and this difference is manifested in a range of financial activities such as mergers and acquisitions and cross-border flows of bond and equity issuances. Dupuy et al. (2010) find that “the geography of capitalism” is reflected in systematic differences in portfolio turnover; North American and Asian investors are the most different with the former being characterized as “impatient” and the latter “patient”.6Hong and Kostovetsky (2012) extend consideration of funds exposure to sin stocks by considering whether fund managers' values (and values, as we have argued, are transmitted within a culture) bias their exposure to sin stocks. Their study provides a useful extension to HK. HK can only assume that certain funds are norm constrained (as can we) where as Hong and Kostovetsky can observe the values of investment managers: their database of campaign donations of investment managers allow them to observe if investors “put their money where their mouths are.” The evidence in this paper, as we have foreshadowed, is broader than HK's conclusions. In the cultures we study, we find that sin stocks are different. The differences we find are consistent with systematic behavior but it is only in the cultures similar to the US, Australia and New Zealand, that the systematic behavior is consistent with HK; that is herding away from sin stocks. In the other countries, however, the herding is in a different direction. Groupthink (Janis, 1982) is a broader notion which allows investors to herd in a variety of directions. Virtue is the only option in HK's social norms framework. With groupthink, virtue is only one of many options. Taffler and Tuckett (2010) link herding to groupthink. Janis (1982, p. 9) defines groupthink as “…a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action…Groupthink refers to a deterioration of mental efficiency, reality testing, and moral judgment that results from in-group pressure”. Social norms, where investors' utility is determined by the ethos of the community, is a manifestation of groupthink. Taffler and Tuckett (2010, p. 98) state that “…when a basic assumption group is operating, individuals do not think for themselves but engage collectively in groupthink… Groupthink provides comfort and good feelings to the group members through the unconscious defences the group as a whole adopts against anxiety…in the basic assumption group, people use the accumulation of information not for thought but to feel good by avoiding what its members would rather not know. A divided state7 of mind takes over from reality-based thinking and information is evaluated to promote good excited feelings with the negative aspects split off from awareness. In a financial markets context, basic assumption group divided behavior, which may be manifest in “herding”, can take over at times…”.8 Rather than behavior driven by social norms, the patterns found in this paper suggest that groupthink drives investors' attitude to sin stocks. Groupthink is a much broader concept than HK's notion of social norms. According to Licht et al. (2007), cultural values guide a society in evaluating and justifying certain actions or events. Greif (1994) defines culture as a coordination device or a set of social norms and beliefs that lead a society to a specific outcome. Hence, cultural values are likely to be linked to groupthink. Salaber (2009) reinforces this link by exploring the cultural aspects of 18 European countries based on their laws and religions. She found that investors' perceptions of sin stocks are influenced by these factors. We compare the culture of the countries in our sample with America's on two dimensions: individualism index9 (captured using an individualism10 index (Hofstede, 2001)) and the Corruption Perceptions Index (CPI). According to Hofstede (2001), there is a distinction between “individualistic” and “collectivistic” cultures: the degree to which people in a country tend to have an “independent” rather than an “interdependent self-construct” (which relates to an individual's self-image or self-esteem). In individualistic cultures, individuals tend to view themselves as “autonomous, independent persons”, while in collectivistic cultures, individuals view themselves “not as separate from the social context but as more connected and less differentiated from others” (Markus and Kitayama (1991, p. 226–227)). Gelfand et al. (2002, p. 835) argue that collectivist cultures (as opposed to individualistic cultures) are those focused on “being accepted by others and by focusing on negative characteristics, in order to accomplish the culturally mandated task of being interdependent and blending in.” The other dimension of culture is the level of corruption in the country. Corruption is defined by Treisman (2000, p. 1) as “the misuse of public office for private gain.” It is an appropriate proxy for cultural values as individuals are more likely to be corrupt in a country where cultural values are more accepting of such behavior (Barr and Serra, 2010). We utilize the Corruption Perceptions Index (CPI)11 prepared annually by Transparency International as a measure of corruption in each country. The CPI ranks countries in terms of the degree to which corruption is perceived to exist among politicians and public officials, based on the views of analysts and business people around the world (Lambsdorff, 2007). The CPI has a scale from one to ten, with zero being “most corrupt” and ten being “least corrupt” (Corruption Perceptions Index, 2009). The cultural dimensions of the countries we study, and those for the US, are depicted in Fig. 1. Fig. 1 indicates that Australia and New Zealand are most like the US.We discuss the definition of “sin” stocks in Section 2 of this paper, along with data and methodology. The results of our analysis are reported in Section 3 of this paper: as we have foreshadowed, they tend to be broader than HK's US based notion of social norms (although Australia and New Zealand come close at times). An important question is why our results differ from HK, which we also address in Section 3. It would be an error to interpret our results as a rejection of HK's social norms hypothesis. We contend that our results provide further insights on how sin stocks are priced when measurable cultural factors are taken into consideration and social norms differ. A multi-country study such as that presented in this paper cannot provide sufficient data points for a valid statistical analysis to be conducted analyzing country differences. We find, however, that one of the dimensions in Fig. 1 – individualism – is potentially useful in suggesting an answer as to why our results differ from those in HK.12 Where appropriate, we present scatter plots of the relationship between the estimated coefficients for SINDUM (the variable used to identify sin stocks) and individualism. We depict a line of best fit in these plots to facilitate understanding of the patterns we discuss. These scatterplots suggest a pattern of behavior which is consistent with less individualistic (more collectivistic) cultures being more inclined to herd toward certain behavior in the way suggested by groupthink (Taffler and Tuckett, 2010). It appears that cultures characterized by higher levels of individualism (i.e. Australia, New Zealand and US) conform to HK's social norms hypothesis. It is unclear whether the behavior is driven by cultural norms or individualistic investors choosing a way of investment behavior. In less individualistic cultures however, it seems that the pressure of the group may drive investors away from the social norms presented by HK. We explore that possibility in this paper when we consider the influence, and potential positive signals from government held entities in less individualist cultures. Therefore, behavior driven by social norms is perhaps simply a special case of groupthink; as such, we can reconcile our findings with those presented in HK. Section 4 concludes the paper.
نتیجه گیری انگلیسی
HK's analysis of the US market is consistent with their argument that social norms drive investors toward certain courses of action. They find that “norm-constrained” institutions have lower holdings of sin stocks. HK also find that sin stocks are relatively undervalued but that they have higher returns ceteris paribus. We follow HK and examine sin stocks in seven Pacific-Basin markets: Australia, India, Japan, South Korea, Malaysia, New Zealand and Singapore. In Australia and New Zealand, the countries which are culturally closest to the US, we find that substantial shareholders are less likely to hold sin stocks; such a finding is consistent with HK's social norms hypothesis. In Japan and South Korea, we find that substantial shareholders are more likely to hold sin stocks. In the other markets we find that there is no difference in substantial shareholdings of sin stocks. Our study finds that sin stocks generate negative risk-adjusted returns in each of the seven Pacific-Basin markets we analyze. In motivating our analysis in Fig. 1, we used two cultural dimensions – individualism and corruption – to suggest that the seven markets we have studied have cultural similarities, as well as contrasts, to the US. Where relevant, we have presented figures which suggest that estimates for SINDUM (the dummy variable used to identify sin stocks) are related to one of these cultural variables, individualism. In Fig. 2, the scatter plot suggests that as cultures become more collectivist (less individualistic), substantial shareholding is more likely to be present in sin stocks. In Fig. 3, the scatter plot suggests that, as cultures become more collectivist, sin stocks are likely to underperform other stocks. In Fig. 4, the scatter plot suggests that, as cultures become more collectivist, sin stocks are likely to be overvalued (that is, investors pay more for them in comparison with other stocks). Fig. 2, Fig. 3 and Fig. 4 suggest that less individualistic investors herd toward sin stocks. In America, and, to some extent, Australia and New Zealand, more individualistic investors might herd away from sin stocks. Investors, being individualistic, take responsibility for their actions and believe they can influence the world. Collectivist investors, on the other hand, appear to herd toward sin stocks; different social norms appear to apply. It may be the case that, in collectivist cultures, the cognitive dissonance that may result from holding sin stocks is reduced by others holding sin stocks. It may also be that, in collectivist cultures, official sanction, such as Japanese government entities holding statistically significantly greater proportions of sin stocks (and, in other countries with low individualism, government entities not treating sin stocks differently) facilitates the good feelings about the firms that allow members in the group to avoid the inconvenient truth of sin companies.