Sin Industry Research Articles

Political Costs and Corporate Tax Planning: Evidence from Sin Firms

The products and services of firms operating in sin industries (alcohol, tobacco, gaming, and firearms) run contrary to social norms and can produce significant negative externalities for society. As such, we expect that sin firms are at greater risk of incurring political costs in the form of additional regulation, higher excise taxes, or capital market intervention if they come under scrutiny for their income tax avoidance practices. Because of the nature of their products, regulators and policymakers are likely to face less pushback on new regulations or taxes on these firms. Sin firms start with a lower ability to influence the political process than firms in non-sin industries. Consequently, we hypothesize and find that sin firms exhibit less tax avoidance than non-sin firms, particularly through uncertain and more risky tax avoidance strategies. The negative relationship between the status of sin firms and tax avoidance is less pronounced in firms that accumulate political capital via intensive lobbying activities. Exploiting changes in partisan control of the Congress and White House, difference-in-differences tests show that firearm firms engage in less (more) tax avoidance when the Democrats (Republican) control both the Congress and White House. Overall, we conclude that political costs play an important role in corporate tax avoidance decisions.

An Examination on Publics’ Attributions on CSR Motives: Focusing on the Case of Sin Industry

An Examination on Publics’ Attributions on CSR Motives: Focusing on the Case of Sin Industry

The Social Stigma Premium in Executive Compensation in Sin Firms

We document a significant premium of about 30 per cent in executive compensation in ‘sin’ industries (alcohol, gambling, and tobacco) that is not explained by standard compensation predictors such as higher managerial skill required in sin industries, higher risk of employment contracts, executive entrenchment, or a higher need for political capital at sin firms. Rather, the premium compensates for costs executives bear due to social ‘stigma’ related to work in industries perceived negatively in light of social norms. Correspondingly, the premium increases with social aversion to sin activities and reduces as firms offset negative social perception with image building. Further, to illustrate the type of costs executives in sin industries bear, we show that (1) sin firm executives are less likely to serve as directors on other boards, particularly at more esteemed firms, which suggests they enjoy lower social status, and (2) CEOs from sin firms are less likely to find employment within five years of leaving a sin firm, and if they do, it is at smaller, less prestigious firms. Our results highlight the significant impact violating social norms has on executive compensation contracts.

Ekonomski aspekti industrije poroka u Hrvatskoj

The aim of this paper is the analysis of the so-called sin industry in Croatia, during the 2008–2013 recession period. The sin industry in Croatia demonstrates resilience to recession by increasing its share in the economy. The share of the sin industry in the Croatian gross domestic product hovers around 2.17%, reaching 6.2 billion kuna. The most significant part of the sin industry is the manufacture and distribution of alcoholic beverages, followed by the manufacture of tobacco products and gambling activities. Less important, although still significant, are illegal activities such as prostitution and drug production and distribution. The sin industry consists of the so-called illegal and legal part. The illegal part accounts for 0.84% of the economy or 3.3 billion kuna. At the same time, the sin industry provides 22.5 thousand jobs, with a rising trend within the total employment in the period of recession (+15.6%).

Corporate social responsibility and media coverage

Abstract In this study, we examine whether firms that act more socially responsible receive more favorable media coverage, and we consider whether firms use CSR to actively manage their media image. We focus on all news stories about a firm, not just those that report on specific CSR initiatives, and find that more socially responsible firms receive more favorable news reportage overall, i.e., they have a more positive media image. These findings are robust after controlling for potential endogeneity. Further, consistent with firms actively managing their media image, we find a stronger relation between CSR and media favorability when incentives to improve a firm’s media image are high, e.g., among firms in sin industries, during periods of low investor sentiment, and prior to seasoned equity offerings. Finally, we find that for firms that demonstrate superior social responsibility and receive more favorable news reporting, there is a significant interaction between social responsibility and media favorability that increases (decreases) a firm’s equity valuation (cost of capital). Our results are consistent with the media slanting their reporting in favor of good performing CSR firms. Overall, we contribute to the literature by showing that firms can influence their media coverage through a relatively subtle channel, CSR performance.