Investor Activism and the Green Transition *

Sebastian Gryglewicz, Simon Mayer and Erwan Morellec
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Sebastian Gryglewicz: Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)
Simon Mayer: Carnegie Mellon University
Erwan Morellec: Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

No 24-96, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop a model in which activist investors contribute to a firm's green transition by exerting effort and contracting with management. Due to moral hazard, only skilled activists can facilitate this transition. However, if the acquisition price of their equity stake accounts for the value of activism, reflecting a free-rider problem, skilled activists either avoid investing or favor firms that can transition independently. Combined, moral hazard and the free-rider problem imply that investor activism only aids the transition when the financial benefits of transitioning are small or activists have strong sustainability preferences. Carbon taxation strengthen these mechanisms, hindering impact activism.

Keywords: Activism; agency conflicts; contracting; sustainable finance; environmental policies (search for similar items in EconPapers)
Pages: 55 pages
Date: 2024-11
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2496

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