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Contracts with (Social) benefits: The implementation of impact investing

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  • Geczy, Christopher
  • Jeffers, Jessica S.
  • Musto, David K.
  • Tucker, Anne M.

Abstract

We draw on new data and theory to examine how private market contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom, 1991), few impact funds tie compensation directly to impact, and most retain traditional financial incentives. However, funds contract directly on impact in other ways and adjust aspects of the contracts such as governance. In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals.

Suggested Citation

  • Geczy, Christopher & Jeffers, Jessica S. & Musto, David K. & Tucker, Anne M., 2021. "Contracts with (Social) benefits: The implementation of impact investing," Journal of Financial Economics, Elsevier, vol. 142(2), pages 697-718.
    • Handle: RePEc:eee:jfinec:v:142:y:2021:i:2:p:697-718
    DOI: 10.1016/j.jfineco.2021.01.006
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    Cited by:

    1. Biasin, Massimo & Cerqueti, Roy & Giacomini, Emanuela & Marinelli, Nicoletta & Quaranta, Anna Grazia & Riccetti, Luca, 2022. "Clusters of social impact firms: A complex network approach," Global Finance Journal, Elsevier, vol. 52(C).
    2. Georgios Yiasoumas & Lazar Berbakov & Valentina Janev & Alessandro Asmundo & Eneko Olabarrieta & Andrea Vinci & Giovanni Baglietto & George E. Georghiou, 2023. "Key Aspects and Challenges in the Implementation of Energy Communities," Energies, MDPI, vol. 16(12), pages 1-24, June.
    3. Laura Toschi & Elisa Ughetto & Andrea Fronzetti Colladon, 2023. "The identity of social impact venture capitalists: exploring social linguistic positioning and linguistic distinctiveness through text mining," Small Business Economics, Springer, vol. 60(3), pages 1249-1280, March.
    4. Kumari Juddoo & Issam Malki & Sudha Mathew & Sheeja Sivaprasad, 2023. "An impact investment strategy," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 177-211, July.
    5. Sangiorgi, Ivan & Schopohl, Lisa, 2023. "Explaining green bond issuance using survey evidence: Beyond the greenium," The British Accounting Review, Elsevier, vol. 55(1).
    6. Paweł Mikołajczak, 2023. "Comparative study of social impact bonds – capital per beneficiary and scheme duration," Bank i Kredyt, Narodowy Bank Polski, vol. 54(2), pages 191-220.
    7. Mansouri, Sasan & Momtaz, Paul P., 2022. "Financing sustainable entrepreneurship: ESG measurement, valuation, and performance," Journal of Business Venturing, Elsevier, vol. 37(6).
    8. Migliavacca, Milena & Patel, Ritesh & Paltrinieri, Andrea & Goodell, John W., 2022. "Mapping impact investing: A bibliometric analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).

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    More about this item

    Keywords

    Impact investing; Contracts; Venture capital; Private equity; Socially responsible investing;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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