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Are Investors Willing to Sacrifice Cash for Morality?

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Abstract

The paper uses questionnaire responses provided by a sample of ethical investors to investigate willingness to sacrifice ethical considerations for financial reward. The paper examines the amount of financial reward necessary to cause an ethical investor to accept a switch from good ethical performance to poor ethical performance. Conjoint analysis is used to allow quantification of the utilities derived from different combinations of ethical and financial performance. Ethical investors are shown to vary in their willingness to sacrifice ethical for financial performance, and hence to display more heterogeneity than the all-encompassing ‘ethical’ label implies. Because of the existence of sub-groups of ethical investors with different attitudes towards financial reward, an attempt has been made to associate observable investors’ characteristics with their level of willingness to trade-off morality for cash. One sub-group of investors in particular appears highly resistant to the idea of accepting higher financial return as compensation for poor ethical performance. This unwillingness casts doubt on Jensen and Meckling’s widely reported claim that trade-off behaviour is ubiquitous in all areas of life.

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Abbreviations

SRI:

Socially responsible investment

REMM:

Resourceful, evaluative, maximising model

LFG j :

A dummy variable indicating presence (1) or absence (0) of the characteristic ‘large financial gain’ in investment opportunity j

MFGj :

A dummy variable indicating presence (1) or absence (0) of the characteristic ‘moderate financial gain’ in investment opportunity j

SFGj :

A dummy variable indicating presence (1) or absence (0) of the characteristic ‘small financial gain’ in investment opportunity j

SFLj :

A dummy variable indicating presence (1) or absence (0) of the characteristic ‘small financial loss’ in investment opportunity j

GEj :

A dummy variable indicating presence (1) or absence (0) of the characteristic ‘good ethical performance’ in investment opportunity j

b iK :

The addition to the utility of individual i caused by the presence of a particular investment characteristic (e.g. LFG)

b i0 :

The utility which individual i derives from the base case, investment of large financial loss (LFL) and poor ethical performance (PE)

DIFF:

The difference between the GE and LFG coefficients for each individual investor

OLD:

Age 55 or above

PORT:

100 income over £75,000 per annum

OVER75K:

Portfolio of £100,000 or more

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Author information

Authors and Affiliations

  1. Nottingham University Business School, Nottingham, UK

    R. H. Berry

  2. Hull University Business School, North Humberside, UK

    F. Yeung

Authors
  1. R. H. Berry
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  2. F. Yeung
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Corresponding author

Correspondence to R. H. Berry.

Appendix

Appendix

 

Variable

Coefficient

Std. error

t-Statistic

p

C

0.400000

0.458258

0.872872

0.4320

LFG

1.000000

0.591608

1.690309

0.1662

MFG

1.000000

0.591608

1.690309

0.1662

SFG

0.500000

0.591608

0.845154

0.4456

SFL

0.500000

0.591608

0.845154

0.4456

GE

3.200000

0.374166

8.552360

0.0010

R 2

0.950704

Mean-dependent var

2.600000

Adjusted R 2

0.889085

S.D.-dependent var

1.776388

S.E. of regression

0.591608

Akaike info criterion

2.071764

Sum squared resid

1.400000

Schwarz criterion

2.253315

Log likelihood

−4.358821

F-statistic

15.42857

Durbin–Watson stat

1.828571

Prob(F-statistic)

0.010112

  1. Dependent variable: SUB1
  2. Method: least squares
  3. Date: 07/26/10 Time: 11:51
  4. Sample: 1 10
  5. Included observations: 10

 

Variable

Coefficient

Std. error

t-Statistic

p

C

−0.100000

0.900000

−0.111111

0.9169

LFG

2.500000

1.161895

2.151657

0.0978

MFG

2.500000

1.161895

2.151657

0.0978

SFG

2.000000

1.161895

1.721326

0.1603

SFL

0.500000

1.161895

0.430331

0.6891

GE

2.200000

0.734847

2.993821

0.0402

R 2

0.810526

Mean-dependent var

2.500000

Adjusted R 2

0.573684

S.D.-dependent var

1.779513

S.E. of regression

1.161895

Akaike info criterion

3.421691

Sum squared resid

5.400000

Schwarz criterion

3.603242

Log likelihood

−11.10845

F-statistic

3.422222

Durbin–Watson stat

1.205556

Prob(F-statistic)

0.128390

  1. Dependent variable: SUB11
  2. Method: least squares
  3. Date: 07/26/10 Time: 11:52
  4. Sample: 1 10
  5. Included observations: 10

 

Variable

Coefficient

Std. error

t-Statistic

p

C

−5.62E−16

0.866025

−6.49E−16

1.0000

LFG

2.000000

1.118034

1.788854

0.1481

MFG

1.000000

1.118034

0.894427

0.4216

SFG

1.500000

1.118034

1.341641

0.2508

SFL

0.500000

1.118034

0.447214

0.6779

GE

2.000000

0.707107

2.828427

0.0474

R 2

0.750000

Mean-dependent var

2.000000

Adjusted R 2-squared

0.437500

S.D.-dependent var

1.490712

S.E. of regression

1.118034

Akaike info criterion

3.344730

Sum squared resid

5.000000

Schwarz criterion

3.526281

Log likelihood

−10.72365

F-statistic

2.400000

Durbin–Watson stat

0.600000

Prob(F-statistic)

0.208399

  1. Dependent variable: SUB14
  2. Method: least squares
  3. Date: 07/26/10 Time: 11:53
  4. Sample: 1 10
  5. Included observations: 10

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Berry, R.H., Yeung, F. Are Investors Willing to Sacrifice Cash for Morality?. J Bus Ethics 117, 477–492 (2013). https://doi.org/10.1007/s10551-012-1529-6

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