DP16316 Ethnic Investing and the Value of Firms

Author(s): Jonas Hjort
Publication Date: July 2021
Programme Areas: Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16316

We study ethnic investing, using transaction data from Kenya's stock exchange and CEO/board turnover. We show that a given investor invests more in a given firm when the firm is run by coethnics and earns lower risk-adjusted returns on such investments. We then model and empirically test for the aggregate impact of (i) the implied taste- or psychology-driven investor discrimination and (ii) counteracting demand- and supply-side forces. Our estimates imply that listed Kenyan firms could collectively be worth 37 percent more-with minority-run firms benefitting the most-if the neutral proportion of active investors increased from 4.2 to 50 percent.