Contracts with (Social) Benefits: The Implementation of Impact Investing

87 Pages Posted: 26 Apr 2018 Last revised: 9 Dec 2019

See all articles by Christopher Geczy

Christopher Geczy

University of Pennsylvania - The Wharton School, Finance Department

Jessica Jeffers

University of Chicago - Booth School of Business

David K. Musto

University of Pennsylvania - Finance Department

Anne M. Tucker

Georgia State University College of Law

Date Written: July 1, 2019

Abstract

We draw on new data and theory to examine how private equity contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom 1991), few impact funds tie compensation to impact, and most retain traditional financial incentives. Funds contract on impact in other ways, using a combination of flexible and rigid terms consistent with Hart and Moore (2008). They also prioritize the formal oversight that fuels the braiding dynamic of Gilson, Sabel and Scott (2010). In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals. We propose an explanatory framework where this results from hidden differences between agents’ utilities from impact.

Keywords: impact investing, venture capital, private equity, socially responsible investment, sustainable investing, corporate social responsibility, contracts

JEL Classification: D64, D86, G24, G32, K12, M14

Suggested Citation

Geczy, Christopher Charles and Jeffers, Jessica and Musto, David K. and Tucker, Anne M., Contracts with (Social) Benefits: The Implementation of Impact Investing (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3159731 or http://dx.doi.org/10.2139/ssrn.3159731

Christopher Charles Geczy

University of Pennsylvania - The Wharton School, Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
(215) 898-1698 (Phone)
(215) 898-6200 (Fax)

Jessica Jeffers (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Anne M. Tucker

Georgia State University College of Law ( email )

P.O. Box 4037
Atlanta, GA 30302-4037
United States
(404) 413- 9179 (Phone)

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