Divest, Disregard, or Double Down? Philanthropic Endowment Investments in Objectionable Firms
AbstractHow much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? I offer the first model characterizing this type of investment decision. I introduce a strategy called "mission hedging," where—in contrast to traditional socially responsible investing—foundations may benefit from skewing investment toward the objectionable firm in order to align funding availability with need. I characterize the trade-offs driving foundation investment decisions. By leveraging the idiosyncratic firm risk typically diversified away in profit-maximizing portfolios, foundations may find that bad actors provide good opportunities to hedge mission-specific risks.
CitationRoth Tran, Brigitte. 2019. "Divest, Disregard, or Double Down? Philanthropic Endowment Investments in Objectionable Firms." American Economic Review: Insights, 1 (2): 241-56. DOI: 10.1257/aeri.20180347
- G11 Portfolio Choice; Investment Decisions
- G14 Information and Market Efficiency; Event Studies; Insider Trading
- L31 Nonprofit Institutions; NGOs; Social Entrepreneurship
- M14 Corporate Culture; Diversity; Social Responsibility