Following up on my post on the PCUSA's decision to divest from Israel, over at Point of Law James Copeland writes (correctly, IMHO):
Professor Bainbridge cites to two studies, based on the South Africa boycotts, that show (a) that the divestment campaigns had no financial effect, and (b) that they on average hurt the "socially responsible" portfolios that divested.
Financial theory would suggest as much. Unlike a boycott in a traditional goods market, the sale of a stock or bond in a financial market in sufficient volume to affect its price makes it more attractive to a buyer who doesn't care about the divester's social cause. These buyers will bid the price back up to its equilibrium level, the risk-adjusted net present value of expected free cash flows from the instrument. So whereas a goods boycott can be effective under certain conditions, a stock divestiture never can unless there is insufficient liquidity on the other side, a highly dubious condition in our financial market. The Presbyterian Church may have $7 billion in financial assets, but that's hardly a sufficient sum to control financial market pricing. ...
Instead of playing Pontius Pilate, the Presbyterians would be better off holding their stock and offering those annoying shareholder resolutions that companies today must typically face. Or they could organize actual boycotts of the goods and services produced by Israeli companies. Or, better yet, they could just keep their mouths shut.
