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.
- G34: Mergers • Acquisitions • Restructuring • Corporate Governance
- H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
Christian Gollier et Sébastien Pouget, « Shareholder Activism and Socially Responsible Investors: Equilibrium Changes in Asset Prices and Corporate Behavior », TSE Working Paper, n° 09-081, septembre 2009.
TSE Working Paper, n° 09-081, septembre 2009