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Shareholder Activism and Socially Responsible Investors: Equilibrium Changes in Asset Prices and Corporate Behavior

Christian Gollier () and Sébastien Pouget

No 09-081, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We examine the functioning of financial markets when firms can invest in socially responsible activities that produce an externality at a cost. We examine a model in which some investors are altruistic in the sense that they internalize the assets' extra-financial performance when they value their portfolio. There are two mechanisms by which these pro-social investors can influence firm's decisions. They can vote with their feet, thereby raising the cost of capital of non-responsible firms. They can also try to get the majority of shares to impose their view to the management. We also examine a model in which there exists a large investor who can act strategically to influence the beliefs of atomistic investors about his vote. We show that an increase in the degree of pro-social motivation of the large investor may raise its purely financial profit.

JEL-codes: G34 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: 2009-09
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