The Effect of Social Norms on Sin Stock Performance

Abstract

Although prior research suggests both institutional pressure and organizational efforts shape firms’ legitimacy, few studies have examined whether these effects are persistent or may decay in a long historical context. Using a sample of 147 sin stocks (tobacco, alcohol, and gambling) from 1978–2014 as a natural experiment, we draw on institutional theory to find that pressure from restrictive normative and regulative institutions jointly contribute to the accumulation of sin stocks’ illegitimacy and are negatively associated with performance. However, firms can decouple themselves from this illegitimacy through reputation or unrelated diversification, to improve performance. Media attention moderates these relationships.