Pasewark, William R. and Mark E. Riley. "It's a Matter of Principle: The Role of Personal Values in Investment Decisions." Working Paper (Texas Tech University and Northern Illinois University), 2009.

The authors state that the objective of this study is to examine two research questions:
1) Do personal values influence investment decisions?
2) How do personal values interact with financial opportunities when individuals make investment decisions?

This study reports on an experiment in which 216 participants (undergraduate and graduate business students) were asked "to make a hypothetical investment based on two actual investment opportunities. One of the investments was a bond issued by a tobacco company. The other investment was a bond issued by a company that produces specialty steels and alloys (the "non-tobacco company")."

The researchers presented each participant with one of three scenarios. In all three scenarios, the tobacco bond yielded 6.731%, and had the same credit rating as the alternative offering. In Treatment 1 "the non-tobacco bond offered the same yield to maturity." In treatment 2 the non-tobacco bond's yield was 50 bps lower than that of the tobacco bond, and in Treatment 3 it was 100 bps lower.

Participants were then given two surveys after making their choice of investment, one focused on the investment aspects of their decision, the other on "personal values regarding the use of tobacco."

Usng factor analysis, the authors identified five factors that appeared important to the participants' choices. Of these, three were clearly financial in nature. But two other were not. One, termed "Health" by the authors, reflected the degree to which participants believed tobacco is addictive or linked to significant health problems. The other, termed "Society", reflects the degree to which the participant believed the proceeds would be used to benefit society. Both of these latter factors were found to be statistically significant (p<0.0001) in explaining the investment decisions made by participants.

The authors' analysis also suggests that "as the opportunity cost of investing in accordance with one's values grows, the strength of those values takes on added importance."