Vanwalleghem (2013)
Vanwalleghem, Dieter. “The real effects of socially responsible investing: Disagreement on the doing well while doing good hypothesis and the cost of capital.” Working paper (Wharton), 2013.
From author's abstract: "The paper develops a micro-structure trading model shedding new light on the relationship between socially responsible investment screening practices and a firm’s equity cost of capital.... The argument brought on [against responsible investment practices] is that SRI screening limits the amount of risk diversification in the market for shunned firms causing traditional investors to demand an additional risk premium. Although this channel is present in the current paper, adding asymmetric information combined with heterogeneity in beliefs regarding the relationship between corporate social and financial performance is shown to dampen and even reverse the cost of capital gap between shunned and non-shunned firms."