Two Leeds School of Business professors,听Shaun Davies, assistant professor of finance, and Edward Van Wesep, associate professor of finance,听have听completed a working paper called听.
"The big idea is that divestment campaigns, while noble, feature two serious flaws -- one,听if initially successful, this very success will make the campaign self-defeating in the long run, and two,听divestment campaigns incent managers in the听opposite way desired --听managers may actually want to be the target of a divestment campaign!" summarizes Davies.
Abstract听
Large divestment campaigns are undertaken in part to depress share prices of firms that investors see as engaged in harmful activities. We show that, if successful, investors who divest earn lower and riskier returns than those that do not, leading them to control a decreasing share of wealth over time. Divestment therefore has only a temporary price impact. Further, we show that, for standard managerial compensation schemes, divestment campaigns actually provide an incentive for executives to increase, not reduce, the harm that they create. Therefore, divestment is both counter-productive in the short run, and self-defeating in the long run.
Full Paper
To download the paper, click听.