Jonathan Berk is The A.P. Giannini Professor of Finance at Stanford Graduate School of Business, and Jules H. van Binsbergen is the Nippon Life Professor on Finance at The Wharton School of the University of Pennsylvania. This post is based on their recent article forthcoming in the Journal of Financial Economics.
If a socially conscious investor wants to have real impact on the way a company operates, what is the best way to achieve it? Given the increased interest in this question by policymakers, institutional investors, and retail investors alike, evaluating what is likely to work, and under what circumstances, deserves careful theoretical and empirical research. In our paper The Impact of Impact Investing which is forthcoming in the Journal of Financial Economics, we provide theoretical and empirical evidence that one often-advertised way of socially responsible investing is unlikely to materially change the way companies operate: divestment in secondary markets. Direct investments in primary markets, and increasing voting rights (engagement) by buying (rather than selling) stocks in secondary markets, both deserve careful attention.
