Trade, Voting, and ESG Policies: Theory and Evidence

47 Pages Posted: 28 Dec 2022 Last revised: 15 Feb 2024

See all articles by Daniel Friedman

Daniel Friedman

University of California, Santa Cruz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

John Duffy

University of California, Irvine

Jean Paul Rabanal

University of Stavanger

Olga Rud

University of Stavanger

Date Written: January 13, 2023

Abstract

We model the interaction between shareholder trading and voting on an ESG policy under different sets of preferences, and then test equilibrium predictions of the model in the laboratory. The model suggests, and laboratory results confirm, that low policy costs favor policy adoption and that intermediate costs lead to a lower rate of policy adoption under dispersed preferences than under polarized preferences. Observed share prices are higher than equilibrium predictions when the policy is adopted. This suggests that incumbent shareholders' capital loss when adopting ESG policies may be less than anticipated.

Keywords: shareholder voting, social responsibility, ESG, experimental finance

JEL Classification: D74, G34, G11, Q50, C92

Suggested Citation

Friedman, Daniel and Duffy, John and Rabanal, Jean Paul and Rud, Olga, Trade, Voting, and ESG Policies: Theory and Evidence (January 13, 2023). Available at SSRN: https://ssrn.com/abstract=4306156 or http://dx.doi.org/10.2139/ssrn.4306156

Daniel Friedman

University of California, Santa Cruz - Department of Economics ( email )

Social Sciences I
Santa Cruz, CA 95064
United States
831-459-4981 (Phone)
831-459-5900 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

John Duffy

University of California, Irvine ( email )

Department of Economics
3151 Social Science Plaza
Irvine, CA 92697
United States
949-824-8341 (Phone)

Jean Paul Rabanal

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Olga Rud (Contact Author)

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

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