Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott
Journal of Business, Vol. 72, No. 1, January 1999

Abstract: Governments and vocal institutional shareholders have been exerting pressure on companies they deem to have objectionable operations (such as tobacco or chemical producers). This paper studies the effect of the most important legislative and shareholder boycott to date, the boycott of the South Africa's apartheid regime. We find that the announcement of legislative/shareholder pressure of voluntary divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the public significance of the boycott and the multitude of divesting companies, financial markets seem to have perceived the boycott to be merely a "sideshow."

Private Politics and Private Policy: A Theory of Boycotts
Stanford University, GSB Working Paper No. RP1766

Excerpt: The theory of private politics presented here begins with the concerns of citizens and the information they receive about an issue. Citizens’ action sets are limited to when to act and the strength of their actions. Their actions are positively related to the seriousness of the issue, so their actions are consistent with the perceived harm. More serious issues lead to stronger boycotts, and they begin earlier. Citizens can exhibit leadership; i.e., a citizen has an incentive to act earlier so as to reveal her information to others. This leads others to act earlier and to take stronger action. The bargaining over the resolution of the boycott begins earlier the more serious the issue, and the activist is in a stronger bargaining position, other things equal. The outcome is then more likely to favor the activist. The strength of activists thus derives from the concerns of citizens.

Recent progress towards a comprehensive peace in the Middle East has led to a relaxation of the enforcement of the Arab economic boycott of Israel. This in turn has led to the entry of all the major Japanese and Korean automobile manufacturers into the Israeli market. In this paper, we examine the effect of the Arab economic boycott on this market. Using recent advances in estimating discrete-choice models of product differentiation, we estimate that had the boycott continued, the welfare loss per purchaser would have been approximately $1940 in 1995. This benefit can be interpreted as a peace dividend. Since approximately 113,000 new automobiles were sold in 1995, the welfare gain to consumers was more than $219 million that year.

Commentary

That the boycott of Danish products might not have the end desired by those who called for it does not require havign read any of the above. All one need do is see this story in the English-language Saudi daily, Arab News, entitled "Effect of Danish Boycott Patchy"

Reaction by supermarket managers in Jeddah to the controversial cartoons published in the Danish and Norwegian media is patchy. In some supermarkets, gaps with labels in English and Arabic, indicate that Danish products have been withdrawn; in others shelves were fully stocked with familiar Danish products yesterday.

The manager of a flagship supermarket in Jeddah said imported Danish dairy products accounted for about five percent of their sales in product volume but more in terms of income. He confirmed that no decision had been taken to reintroduce Danish products on the shelves. “As the situation stands, they are off for the foreseeable future.”

His supermarket took the initiative when the news became common knowledge. “We have had very positive feedback from our customers to our decision,” he said.

However, the manager of a major supermarket in the north of Jeddah said that there had been almost no reaction at all to date. “We have had one person bring back a purchase asking for a refund. Given the circumstances, we respected his wish at once.”

If this story is representative, it will require much more consistency and a greater diligence on the part of Muslims the world over for the boycott to have a lasting damage on Danish products. If the woman with the cell phone is indicative of the mood of the populace, and that populace is willing to follow through, then the sale of Danish goods in the Middle East will be a thing of the past.

One other aspect of the story that is not being discussed is that it was the Danes that led a boycott of their own against a highly unpopular Middle Eastern country in 2002 - Israel.

Danish Boycott of Israel taking Effect: Israeli businessman argues case in Denmark, but fails to end boycott

After a Danish workers' union cancelled a preliminary order of computer hardware from an Israeli high tech company due to the IDF's "rough" actions in the Palestinian territories, the firm's chief executive launched an Internet campaign to try to reverse the union's decision. But even a face-to-face meeting with the union's chairman didn't succeed in changing the Danish boycott of Israel.

"For the moment, when the Israeli military is behaving so rough in the Palestinian Areas, nor I or my Union feel that it's is right to make business with companies from your country," (Jens Peter) Hansen ( head of SiD -the General Workers Union in Denmark) wrote in his cancellation notification... Hansen expressed his hope that the "ugly war" between Israel and Palestine would end soon.

Hansen's letter was based on a statement issued by SiD last month, in which the Danish union recommended "a boycott not only of goods from the occupied areas but also of goods from Israel." Since the mid-1990s, SiD has worked on development projects with the Palestine General Federation of Trade Unions (PGFTU).

Load of good and goodwill this got the Danes.

Finally, Hassan Hatrash of the Arab News has identified the one clear winner in the Danish boycott- the newspapers:

Saudi newspapers seem to be the only winners in controversy over blasphemous cartoons first published in Denmark in September and since reprinted in other dailies.

Local newspapers have been receiving a windfall of advertisements in recent days taken out by local advertisement agencies clarifying their clients’ support of the boycott, or denying their relationship to the Nordic country.

Kuwaiti Danish Dairy Company (KDDC), which has a strong presence in the Saudi market, asked people yesterday in a local paper to “Relax” in an advert taken out in Al-Riyadh newspaper. The Kuwaiti company claims in the advert that they are 100 percent Kuwaiti, that it packages many of its products in Saudi Arabia and imports the mangoes for their juice from India.

Also on this blog: Boycott of the Danes |

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