Do Investors Care About Corporate Externalities? Experimental Evidence

43 Pages Posted: 2 Oct 2019 Last revised: 9 Oct 2019

See all articles by Jean-Francois Bonnefon

Jean-Francois Bonnefon

University of Toulouse 1 - Toulouse School of Economics Institute for Advanced Studies/Harvard Law School LWP

Augustin Landier

HEC

Parinitha Sastry

Federal Reserve Banks - Federal Reserve Bank of New York

David Thesmar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: September 23, 2019

Abstract

We measure how shareholders value a firm's ethical actions via an experiment. Our findings are threefold. First, the "selfish investor hypothesis'' is strongly rejected. Participants are willing to pay $ .7 more for buying a share in a firm giving one more dollar per share to charities. Symmetrically, a firm that makes profits by exercising a negative externality of $1 on a charity is valued $.9 less than a similar company with no externality. The scaling of non-pecuniary preferences is linear: doubling the size of a social externality doubles its impact on willingness to pay. Second, the data show that whether investors are pivotal or not with regard to the ethical actions of the firm does not affect their willingness to pay. Third, when participants make investment decisions on behalf of a third party (delegation), their generosity level remains similar. Our results appear to be compatible with a utility model where non-pecuniary benefits are conditional on stock holding.

Keywords: Socially Responsible Investing, ESG, Sustainable Finance, Altruism

JEL Classification: G02, G11

Suggested Citation

Bonnefon, Jean-Francois and Landier, Augustin and Sastry, Parinitha and Thesmar, David, Do Investors Care About Corporate Externalities? Experimental Evidence (September 23, 2019). HEC Paris Research Paper No. FIN-2019-1350, Available at SSRN: https://ssrn.com/abstract=3458447 or http://dx.doi.org/10.2139/ssrn.3458447

Jean-Francois Bonnefon

University of Toulouse 1 - Toulouse School of Economics Institute for Advanced Studies/Harvard Law School LWP ( email )

21 allée de Brienne
31015 Toulouse cedex 6 France
Toulouse, 31015
France

Parinitha Sastry

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

David Thesmar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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