Exit vs. Voice
52 Pages Posted: 12 Sep 2020
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Exit vs. Voice
Exit vs. Voice
Exit vs. Voice
Date Written: August 2020
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: Boycott, Divestment, engagement, exit, Social Responsibility, voice
JEL Classification: D02, D21, D23, D62, D64, H41, L21
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