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Investment Strategies and Corporate Behaviour with Socially Responsible Investors: A Theory of Active Ownership

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  • Christian Gollier
  • Sébastien Pouget

Abstract

Socially responsible investors constitute an important force in today's global financial markets. This paper examines conditions under which socially responsible investors induce companies to behave responsibly. We develop an asset pricing model in which some shareholders are active owners, that is, they engage companies by voting on strategic decisions. Differences of objective among shareholders arise because socially responsible investors value corporate externalities. In our baseline model, we show that a firm may choose a responsible strategy even if the majority of investors are not responsible. We also demonstrate that such a choice of a responsible strategy might be fragile because it might depend on investors' self‐fulfilling beliefs. We then extend our baseline model to analyse the link between divestment and engagement strategies, the case with multiple firms, the role of benefit corporation charters, and the impact of a large investor.

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  • Christian Gollier & Sébastien Pouget, 2022. "Investment Strategies and Corporate Behaviour with Socially Responsible Investors: A Theory of Active Ownership," Economica, London School of Economics and Political Science, vol. 89(356), pages 997-1023, October.
    • Handle: RePEc:bla:econom:v:89:y:2022:i:356:p:997-1023
    DOI: 10.1111/ecca.12436
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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