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Investment Strategies and Corporate Behaviour with Socially Responsible Investors: A Theory of Active Ownership

Sebastien Pouget () and Christian Gollier ()
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Sebastien Pouget: University of Toulouse Capitole, Toulouse School of Economics and Toulouse School of Management

No 2021.15, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: Socially responsible investors constitute an important force in today's global financial markets. This paper examines conditions under which socially responsible investors induce companies to behave responsibly. We develop an asset pricing model in which some shareholders are active owners, i.e., they engage companies by voting on strategic decisions. Differences of objective among shareholders arise because socially responsible investors value corporate externalities. In our baseline model, we show that a firm may choose a responsible strategy, even if the majority of investors are not responsible. We also demonstrate that such choice of a responsible strategy might be fragile because it might depend on investors' self-fulfilling beliefs. We then extend our baseline model to analyse the link between divestment and engagement strategies, the case with multiple firms, the role of benefit corporation charters and the impact of a large investor.

Keywords: asset pricing; voting; corporate social responsibility; responsible investments; externalities (search for similar items in EconPapers)
JEL-codes: G11 G34 H23 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2021-12
New Economics Papers: this item is included in nep-cfn
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http://faere.fr/pub/WorkingPapers/Gollier_Pouget_FAERE_WP2021.15.pdf First version, 2021 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fae:wpaper:2021.15

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