Social Preferences and Corporate Investment

Abstract

This paper presents different social preferences and their impact on investors' and firms' decisions within a unified framework. We categorize preferences into three types: deontological, non-consequentialist, and consequentialist. When investors are large, all three preferences influence corporate investment. However, when investors are competitive, consequentialist preferences may become irrelevant for corporate investment, unlike the other two preference types. For these two preference types, portfolio divestment has significant effects on the supply of green and brown firms in the economy. We also discuss alternative channels through which social preferences influence decisions and review relevant experimental and empirical evidence.

Keywords: Social Preferences, Portfolio Choice, Corporate Investment

JEL Classification: G1, G3