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

80 Pages Posted: 26 Apr 2018 Last revised: 10 Sep 2020

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: June 12, 2020

Abstract

We draw on new data and theory to examine how private market 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 directly to impact, and most retain traditional financial incentives. However, funds contract directly on impact in other ways and adjust aspects of the contracts like governance. In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals.

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 (June 12, 2020). European Corporate Governance Institute – Finance Working Paper No. 674/2020, Journal of Financial Economics (JFE), Forthcoming, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, 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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