Exit vs. Voice

Harvard Law School John M. Olin Center Discussion Paper # 1061

54 Pages Posted: 28 Aug 2020 Last revised: 24 Jun 2022

See all articles by Eleonora Broccardo

Eleonora Broccardo

University of Trento

Oliver Hart

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: April 22, 2022

Abstract

We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies. We show that in a competitive world exit is less effective than voice in pushing firms to act in a socially responsible manner. Furthermore, we demonstrate that individual incentives to join an exit strategy are not necessarily aligned with social incentives, whereas they are when well-diversified investors are allowed to express their voice. We discuss what social and legal considerations might sometimes make exit preferable to voice.

Keywords: Exit, Voice, Social Responsibility, Divestment, Boycott, Engagement

JEL Classification: D02, D21, D23, D62, D64, H41, L21

Suggested Citation

Broccardo, Eleonora and Hart, Oliver D. and Zingales, Luigi, Exit vs. Voice (April 22, 2022). Harvard Law School John M. Olin Center Discussion Paper # 1061, Available at SSRN: https://ssrn.com/abstract=3680815 or http://dx.doi.org/10.2139/ssrn.3680815

Eleonora Broccardo

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

Oliver D. Hart

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-3461 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Luigi Zingales (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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