Institutional ownership, valuation, and financing decisions of European sin stocks

Abstract

This thesis studies the effects of social norms on the financial markets, by focusing on institutional ownership of sin stocks, and the implications that it has. The relationship between institutional ownership and characteristics such as valuation, analyst coverage and corporate financing structure have been interlinked in previous literature.

In terms of studying European companies, the literature is not as comprehensive as for e.g., the US. In my thesis, I use data from Bloomberg on the full institutional ownership, which has previously only been studied with proxies, such as institutional ownership in the top 10 owners of a company. By using more comprehensive data, I follow the methods by Hong & Kacperczyk (2009), and study the valuation, institutional ownership, analyst coverage and corporate financing of sin companies, as opposed to a group of comparable companies.

In my thesis, I present findings from data with a timeframe from 2010 to 2021. I find statistically significant results portraying that sin stocks in Europe are less held by institutions, are lower valued and additionally tend to use more debt financing as equity financing costs is increased due to the lower valuation. As for analyst coverage, I do not find evidence which would support previous studies finding lower analyst coverages for sin companies. Overall, this thesis adds to the literature by providing results from a European dataset with a comprehensive institutional ownership dataset.