How Much Do Investors Care About Social Responsibility?

Abstract

Perhaps the most important corporate law debate over the last several years concerns whether directors and executives should manage the corporation to maximize value for investors or also take into account the interests of other stakeholders and society. But, do investors themselves wish to maximize returns, or are they willing to forgo returns for social purposes? And more broadly, do market participants, such as investors and consumers, differ from donors in the ways in which they prioritize monetary gains and the promotion of social goals?

This project attempts to answer these questions with evidence from an experiment conducted with 279 participants that involved real monetary gains for participants. Our empirical analysis provides four main results: First, investors are generally willing to forgo some monetary gains to promote social interests. Second, individuals are willing to forgo greater amounts when consuming and making donations than when investing. Third, whereas most investors are willing to forgo gains to promote social interests, a significant percentage of investors (thirty-two percent in our study) have a strong preference for maximizing monetary gains and are unwilling to forgo even very small amounts to advance any social goals. Fourth, there is significant heterogeneity in individuals’ willingness to forgo in each of the three channels (investment, consumption, and donation), which is related to their political affiliation, gender, and income. Our evidence suggests that Democrats, women, and higher-income participants tend to forgo more frequently and in greater amounts compared to Republicans, men, and lower-income participants, though these relationships vary with the cause in question. These findings have important implications for the current debate regarding corporate social responsibility and for the actions of corporate executives and investment managers.

Keywords: social responsibility, stakeholders, corporate purpose, socially responsible investing

JEL Classification: K22, G23, G34, G41, M14