When Investors Care about Politics: A Meta-Synthesis of Political Divestiture Studies on the Capital Flight from South Africa during Apartheid

Abstract

In the wake of historical and political events, stakeholder pressure can trigger shareholders to divest from politically incorrect markets. Political divestiture is the investment withdrawal from socially irresponsible markets following the goal of accomplishing socio-political change. One of the most prominent political divestiture cases is the foreign capital flight from South Africa during Apartheid. In the emerging literature on Socially Responsible Investment (SRI), scarce are comparative studies of the impact of political divestiture on corporate market values. Six studies of political divestiture from Apartheid South Africa were meta-synthesized to find a pattern of stakeholder pressure, political divestiture and corporate endeavors. The results varied – some studies suggest a positive, others a negative impact and even no relation of political divestiture and corporate value was reported. The instringent findings are attributed to stem from methodological specificities of event studies. The internal validity of event study designs is limited by confounding and contaminating occurrences and sample selection biases. Insider trading information leakage and industry-specificities imply additional drawbacks. The external validity is challenged by geographically-limited and time-targeted foci as well as non-typical samples that lower the results’ replicability and generalizability. Future research may compare divesting corporations’ performance with those operating in politically incorrect markets. Concurrently improving the event study measurement will help advancing the idea of financial social responsibility as a means of global governance.

Keywords: Apartheid, business ethics, corporate market values, Corporate Social Responsibility, event study method, political divestiture, shareholder activism, Socially Responsible Investment, South Africa, stakeholder pressure

JEL Classification: B4, D00, D7, F3 I