Trade, Voting, and ESG Policies: Theory and Evidence
47 Pages Posted: 28 Dec 2022 Last revised: 15 Feb 2024
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
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