Power of Values-based Investors on ESG Actions of Value-orientated Managers

Meg Adachi-Sato
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Meg Adachi-Sato: Research Institute for Economics & Business Administration, Kobe University, JAPAN and Faculty of Business Administration and Accountancy, Khon Kaen University, THAILAND

No DP2025-01, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This study examines how for-profit firms obtain capital from values-based, socially responsible investors by undertaking environmental, social, and governance (ESG) actions within a search model. In this model, the two parties are matched and benefit from informational advantages throughout the search process. The paper shows that an increase in the number of socially responsible investors encourages the for-profit firms capable of taking ESG actions to consistently take such actions, even if doing so may result in negative marginal pecuniary returns. Consequently, the paper concludes that regulators aiming to encourage firms to adopt more ESG actions should incentivize investors to prioritize ESG performance in their investment decisions. It also demonstrates that strengthening shareholder rights or promoting corporate governance reforms does not necessarily motivate firms to pursue ESG actions.

Keywords: ESG; Search; Social impact; Socially responsible investor; Competitive capital market; Bargaining; Value versus values motivations (search for similar items in EconPapers)
JEL-codes: D83 G23 G32 M14 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2025-01
New Economics Papers: this item is included in nep-env and nep-sea
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