Publications – Dreihaus College of Business


The Financial Performance of SRI Excluded Firms

Document Type


Publication Date

January 2008


Socially Responsible Investments (SRI) can be characterized as ‘negative screening’: investors eliminate certain firms from consideration based not on perceived performance but on inappropriate behavior (labor issues or support of same sex unions for example) or for products considered inappropriate for society (alcohol and tobacco for example). There have been a large number of studies examining the effect of this negative filter on investment performance, but little research on the operational impact on a firm of being systematically excluded by SRI investors. This paper examines what financial consequences, if any, occur if a firm is excluded by a large number of SRI funds. We find that debt ratios, profit margins, operating costs, and cash positions of SRI-excluded firms are affected. These excluded firms tend to use more debt, hold higher cash positions, and have higher profit margins and lower operating costs than similar, non-excluded firms.

Source Publication

Journal of the Academy of Finance