Controversial Industries: does it pay to ignore social norms?

Abstract: This paper investigates the impact of social norms on the performance and valuation of “controversial stocks”- publicly traded companies involved in the production of Adult Entertainment, Alcohol, Gambling, Nuclear Energy, Tobacco, Uranium, and Weapons. Their performance and valuation is directly compared with compare non-controversial stocks. The paper consider an international sample of 941 controversial stocks. Employing a multi-factor performance measure, seven countries provide a significant outperformance of controversial stocks across all relevant control factors. The valuation analysis, however, provide mixed results on a country level, but on the global market-to-book ratio provide a significant overvaluation of controversial stocks compared to comparable non-controversial stocks, which contradicts the prediction of an undervaluation.JEL classification: