EcoFin Research Papers

This study examines how moral norms influence financial valuation across firms, asset classes, and institutional settings. Using firm-level equity data from 30 countries and cryptocurrency market data over the period 2005–2024, we analyze whether moral constraints are systematically priced. Moral exposure is measured through firm involvement in sin-related industries, employee happiness scores, and the absence or presence of institutional backing in crypto markets. Employing Fama–MacBeth cross-sectional regressions, portfolio sorting techniques, and panel volatility models, we find that firms operating in morally contentious industries earn higher expected returns but exhibit elevated downside risk. In contrast, firms with higher employee happiness display valuation premiums and lower crash risk. In crypto markets, assets lacking institutional or governance anchors experience significantly higher volatility and weaker long-term performance. These results suggest that moral constraints affect not only expected returns but also the distribution of risk, reinforcing the role of ethical considerations as a priced dimension of financial markets.

Moral norms, sin stocks, employee happiness, asset pricing, cryptocurrencies

G12, G15, Z13

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