Augustin Landier is a Professor of Finance at HEC Paris, Parinitha Sastry is an Assistant Professor of Finance at Columbia Business School, and David Thesmar is the Franco Modigliani Professor of Financial Economics at the MIT Sloan School of Management. This post is based on a recent article forthcoming in the Journal of Financial Economics, by Professor Landier, Professor Sastry, Professor Thesmar, and Professor Jean-Francois Bonnefon.
Over recent years, responsible asset management has developed considerably in size. However, the exact nature of responsible investors’ preferences remains somewhat elusive. Our paper investigates the moral preferences of investors through incentivized experiments.
There are essentially two main views of investors’ ethical preferences in the literature.
- Value-alignment refers to investors’ aversion to owning shares in companies whose business practices conflict with their own moral values. Such investors experience corporate externalities of the portfolio companies they own as a non-pecuniary dividend.
- Impact-seeking investors prioritize the social consequences of their investment choices, valuing the additionality of their actions. For these investors, corporate externalities impact their utilities regardless of their stock holdings, reflecting a preference for making a positive social impact.
