Working Paper: NBER ID: w27710
Authors: Eleonora Broccardo; Oliver D. Hart; Luigi Zingales
Abstract: We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies. We show that in a competitive world exit is less effective than voice in pushing firms to act in a socially responsible manner. Furthermore, we demonstrate that individual incentives to join an exit strategy are not necessarily aligned with social incentives, whereas they are when well-diversified investors are allowed to express their voice. We discuss what social and legal considerations might sometimes make exit preferable to voice.
Keywords: No keywords provided
JEL Codes: D02; D21; D23; D62; D64; H41; L21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exit strategies (L14) | firm behavior (D21) |
| voice strategies (L96) | firm behavior (D21) |
| exit strategies < less effective than voice strategies (L19) | firm responsibility (G32) |
| individual incentives to join exit strategies (L26) | social incentives (D71) |
| well-diversified investors expressing voice (G11) | firm behavior (D21) |
| divestment and boycotting (P33) | market value of polluting firms (Q52) |
| divestment and boycotting (P33) | pollution reduction (Q52) |
| selfish behavior of agents (D91) | underperformance of exit strategies (G33) |