When Does a Stock Boycott Work? Evidence from a Clinical Study of the Sudan Divestment Campaign

Abstract

A stock divestment campaign is a common strategy used by social activists to pressure corporations to abandon undesirable practices. However, evidence on the effectiveness of the strategy remains mixed. In this paper we examine the effectiveness of an international stock boycott by studying a large sample of institutional investor transactions in four emerging market stocks targeted by the Sudan divestment campaign from 2001 to 2012. We find evidence of a negative relationship between the intensity of the campaign and the ownership breadth of the stocks, suggesting the effectiveness of the campaign in encouraging investors to divest from targeted companies. Additional analysis indicates that investors in countries that are sympathetic towards CSR activities are more responsive to the divestment campaign. Further, higher campaign intensity is associated with depressed stock prices, which predicts higher future returns. Finally, when analyzing the annual reports and CSR reports, we find preliminary evidence about the effects of the campaign on the targeted companies’ corporate policies and activities in Sudan. In sum, our results support the effectiveness of the stock boycott.

Keywords: Divestment; Stock boycott; Sudan; Institutional investors; Socially responsible investment; Corporate social responsibility