The Impact of Social Rating on Stock Prices : A Theoretical Model

Résumé 0

Socially responsible investments have shown a rapid expansion these past years because of the investors’ new interest for these investments. This study proposes a theoretical model formalizing the impact of this new inclination for socially responsible investment on the stocks’ prices. In order to reach this goal, we model the progressive transformation of financial markets as a result of ethical demand. In particular, we show that the emergence of a social rating makes the price of ethical stocks increase, and thus the cost of capital of these firms decrease. This benefit can encourage firms to adapt themselves by adopting an ethical behaviour if the decrease in their cost of capital is lower than the cost of becoming ethical. Classification JEL: M14, G11, G12