The price of unsustainability: An experiment with professional private equity investors
This paper sheds light on the impact sustainable and unsustainable corporate practices have on equity financing. We present a unique framed field experiment in which professional private equity investors competed in closed auctions to acquire fictive firms. We hence observe that corporate non-financial performance impacts firm valuation and investment decision and we quantify to which extent. Main result is an asymmetric effect, entrepreneurs having more to lose from unsustainable practices than to gain from sustainable ones. Our findings are discussed in terms of practical implications for both investors and firm managers.
|Date of creation:||26 Nov 2012|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00757203|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fidrmuc, Jana P. & Roosenboom, Peter & Paap, Richard & Teunissen, Tim, 2012.
"One size does not fit all: Selling firms to private equity versus strategic acquirers,"
Journal of Corporate Finance,
Elsevier, vol. 18(4), pages 828-848.
- : Jana P. Fidrmuc & Peter Roosenboom & Richard Paap & Tim Teunissen, 2012. "One size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers," Working Papers wpn12-02, Warwick Business School, Finance Group.
- Professor Paul Klemperer, 2000.
"What Really Matters in Auction Design,"
- Steven N. Kaplan & Per Strömberg, 2008.
"Leveraged Buyouts and Private Equity,"
NBER Working Papers
14207, National Bureau of Economic Research, Inc.
- Jan Lepoutre & AimÃ© Heene, 2006.
"Investigating the Impact of Firm Size on Small Business Social Responsibility: A Critical Review,"
Journal of Business Ethics,
Springer, vol. 67(3), pages 257-273, September.
- J. Lepoutre & A. Heene, 2006. "Investigating the Impact of Firm Size on Small Business Social Responsibility: a Critical Review," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/396, Ghent University, Faculty of Economics and Business Administration.
- Harris, Jared D. & Sapienza, Harry J. & Bowie, Norman E., 2009. "Ethics and entrepreneurship," Journal of Business Venturing, Elsevier, vol. 24(5), pages 407-418, September.
- Patricia Crifo & Vanina Forget, 2012.
"Think Global, invest responsible: why the private equity industry goes green,"
- Patricia Crifo & Vanina Forget, 2013. "Think Global, Invest Responsible: Why the Private Equity Industry Goes Green," Journal of Business Ethics, Springer, vol. 116(1), pages 21-48, August.
- Patricia Crifo & Vanina Forget, 2012. "Think global, invest responsible.Why the private equity industry goes green," Post-Print hal-01410565, HAL.
- J.P. Gond & A. El Akremi & J. Igalens & V. Swaen, 2011. "A corporate social responsibility," Post-Print hal-00826426, HAL.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
- David H. Hsu, 2004. "What Do Entrepreneurs Pay for Venture Capital Affiliation?," Journal of Finance, American Finance Association, vol. 59(4), pages 1805-1844, 08.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Hall, Jeremy K. & Daneke, Gregory A. & Lenox, Michael J., 2010. "Sustainable development and entrepreneurship: Past contributions and future directions," Journal of Business Venturing, Elsevier, vol. 25(5), pages 439-448, September.
- Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
- Bengt Holmstrom & Jean Tirole, 1997.
"Financial Intermediation, Loanable Funds, and The Real Sector,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(3), pages 663-691.
- Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
- Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
- Takeda, Fumiko & Tomozawa, Takanori, 2008. "A change in market responses to the environmental management ranking in Japan," Ecological Economics, Elsevier, vol. 67(3), pages 465-472, October.
- Masako Ueda, 2004. "Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation," Journal of Finance, American Finance Association, vol. 59(2), pages 601-621, 04.
- Cohen, Boyd & Winn, Monika I., 2007. "Market imperfections, opportunity and sustainable entrepreneurship," Journal of Business Venturing, Elsevier, vol. 22(1), pages 29-49, January.
- Zahra, Shaker A. & Gedajlovic, Eric & Neubaum, Donald O. & Shulman, Joel M., 2009. "A typology of social entrepreneurs: Motives, search processes and ethical challenges," Journal of Business Venturing, Elsevier, vol. 24(5), pages 519-532, September.
- Paul Klemperer, 2004.
"Auctions: Theory and Practice,"
Online economics textbooks,
SUNY-Oswego, Department of Economics, number auction1.
- Galema, Rients & Plantinga, Auke & Scholtens, Bert, 2008. "The stocks at stake: Return and risk in socially responsible investment," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2646-2654, December.
- Muzyka, Dan & Birley, Sue & Leleux, Benoit, 1996. "Trade-offs in the investment decisons of European venture capitalists," Journal of Business Venturing, Elsevier, vol. 11(4), pages 273-287, July.
- Hockerts, Kai & Wüstenhagen, Rolf, 2010. "Greening Goliaths versus emerging Davids -- Theorizing about the role of incumbents and new entrants in sustainable entrepreneurship," Journal of Business Venturing, Elsevier, vol. 25(5), pages 481-492, September.
- Kuckertz, Andreas & Wagner, Marcus, 2010. "The influence of sustainability orientation on entrepreneurial intentions -- Investigating the role of business experience," Journal of Business Venturing, Elsevier, vol. 25(5), pages 524-539, September.
- Audra L. Boone & J. Harold Mulherin, 2009. "Is There One Best Way to Sell a Company? Auctions Versus Negotiations and Controlled Sales-super-1," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(3), pages 28-37.
- Bryant, Peter, 2009. "Self-regulation and moral awareness among entrepreneurs," Journal of Business Venturing, Elsevier, vol. 24(5), pages 505-518, September.
- Parrish, Bradley D., 2010. "Sustainability-driven entrepreneurship: Principles of organization design," Journal of Business Venturing, Elsevier, vol. 25(5), pages 510-523, September.
- Patricia Crifo & Jean-Pierre Ponssard, 2010. "Corporate Social Responsibility: From Compliance to Opportunity?," Post-Print hal-00512337, HAL.
- Dawson, Alexandra, 2011. "Private equity investment decisions in family firms: The role of human resources and agency costs," Journal of Business Venturing, Elsevier, vol. 26(2), pages 189-199, March.
- Claudio Loderer & Urs Waelchli, 2010. "Protecting Minority Shareholders: Listed versus Unlisted Firms," Financial Management, Financial Management Association International, vol. 39(1), pages 33-57, 03.
- Nicholls-Nixon, Charlene L. & Cooper, Arnold C. & Woo, Carolyn Y., 2000. "Strategic experimentation: Understanding change and performance in new ventures," Journal of Business Venturing, Elsevier, vol. 15(5-6), pages 493-521.
- Tibor Neugebauer & Javier Perote, 2008. "Bidding ‘as if’ risk neutral in experimental first price auctions without information feedback," Experimental Economics, Springer;Economic Science Association, vol. 11(2), pages 190-202, June.
- Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
- El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
- Romano, Claudio A. & Tanewski, George A. & Smyrnios, Kosmas X., 2001. "Capital structure decision making: A model for family business," Journal of Business Venturing, Elsevier, vol. 16(3), pages 285-310, May.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00757203. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.