LGBT policies impact investor behaviour
This overview is based on the academic paper entitled “LGBT policy, investor trading behavior, and return comovement”, authored by Nhut H. Nguyen, Hung X. Do, Lily Nguyen, Quan M.P. Nguyen
It matters what the public think
In addition, the researchers found that public sentiment toward LGBT rights impacts investors’ investment decisions.
When public sentiment is high (ie, favourable), investors tend to pour more capital into LGBT-favoured mutual funds and withdraw capital from those that are less LGBT friendly.
The adoption of LGBT policies also impacted investors’ buying or selling shares of these firms: investors supporting LGBT-friendly shares tend to buy more of those shares whereas unsupportive investors tend to reduce those shares in their portfolios.
Professor Nguyen says the findings provide insights into the power of public LGBT sentiment on corporate performance.
Impact on performance
For example, just as customers who buy or boycott the products of LGBT-supportive firms can affect financial bottom lines, the way investors buy or sell shares of these firms could significantly impact their business’s performance.
Further, the decreasing gap between buying and selling the shares of LGBT-supportive firms suggests that LGBT rights are becoming more accepted.
Encouragement based on evidence
Why are these findings important?
“Based on the evidence, we encourage corporate managers to think carefully before they take actions on LGBT-related policies,” says Professor Nguyen. “That includes how their key investors are likely to respond, what the policies of their equivalent or competing firms are, and how the public is likely to feel about the actions.
“Fundamentally, our study suggests that investors can do well financially while doing social good.”