Impact investing

Brad Barber, Adair Morse and Ayako Yasuda

Journal of Financial Economics, 2021, vol. 139, issue 1, 162-185

Abstract: We show that investors derive nonpecuniary utility from investing in dual-objective Venture Capital (VC) funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower internal rates of return (IRRs) ex-post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5–3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and United Nations Principles of Responsible Investment signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., Employee Retirement Income Security Act) exhibit low WTP.

Keywords: Impact investing; Venture capital; Private equity; Socially responsible investment; United nations principles of responsible investment (UNPRI); Sustainable investing; Public pension funds; Willingness to pay; Random utility discrete choice models (search for similar items in EconPapers)
JEL-codes: G11 G21 G22 G23 G24 G28 H41 M14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Impact Investing (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:1:p:162-185

DOI: 10.1016/j.jfineco.2020.07.008

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