Working Paper: NBER ID: w30771
Authors: Harrison Hong; Edward P. Shore
Abstract: Is shareholder interest in corporate social responsibility driven by pecuniary motives (abnormal rates of return) or non-pecuniary ones (willingness to sacrifice returns to address various firm externalities)? To answer this question, we categorize the literature into seven tests: (1) costs of capital, (2) performance of portfolios, (3) ownership by types of institutions, (4) surveys and experiments, (5) managerial motives, (6) shareholder proposals, and (7) firm inclusion in responsibility indices. These tests and the most recent proposals data predominantly indicate that shareholders are driven by non-pecuniary motives. To stimulate further research on welfare implications for global warming, we assess whether estimates of the returns shareholders are willing to sacrifice (or, ‘greeniums’), along with the increasing amounts of assets pledged to firms that become sustainable, are consistent with the growth of aggregate investments in the decarbonization sector.
Keywords: Corporate Social Responsibility; Shareholder Interests; Sustainable Finance
JEL Codes: G1; G10; G12; G14; G17; G19; G2; G20; G21; G23; G3; G31; G35; G39; G4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shareholder interest in CSR (G38) | nonpecuniary motives (M52) |
| nonpecuniary motives (M52) | sacrifice returns to mitigate firm externalities (D21) |
| socially responsible firms (M14) | lower cost of capital (G31) |
| Shareholder interest in CSR (G38) | higher share prices (G19) |
| higher share prices (G19) | incentivize non-responsible firms to adopt CSR practices (G38) |
| CSR practices (M14) | impact on shareholder returns (G35) |