International variation in sin stocks and its effects on equity valuation

We examine the impact of differences in time varying social views towards sin stocks across G20 nations on firm valuation and excess returns. Sin stocks have an 8% lower equity valuation in countries where society is strongly against such industries. After controlling for other factors, sin stocks have excess returns of about 1–2% annually. However, these returns are largely arbitraged away in nations without capital and investment controls, but persist in countries with capital restrictions. These results are robust to proxies for litigation risk, transparency, growth opportunities, sin measures, and alternative measures of firm valuation.