Augustin Landier is a Professor of Finance at HEC Paris, Parinitha Sastry is an Assistant Professor of Finance at the Wharton School of the University of Pennsylvania, and David Thesmar is the Franco Modigliani Professor of Financial Economics at the MIT Sloan School of Management. This post is based on their recent paper.
Investors and executives have often floated the idea that companies can “do well by doing good.” For example, by leaning into sustainability or promoting fair treatment of workers, companies can enjoy higher profits thanks to talent recruitment, loyal customers, or easier financing. However, in a new experimental paper, we show that this story, sometimes referred to as “instrumental stakeholderism”, is incomplete: stakeholders care not just about what firms do, but why they do it.
The core finding: an “intention premium”
The paper’s central question is simple: if two firms take the same environmentally beneficial action and generate the same cash flows, does it matter to investors whether the CEO says the firm is motivated by profit or by social concern? A strict consequentialist would answer “no”: only the financial payouts and externalities should matter.
However, in a large online experiment with 1,399 U.S. participants recruited via Prolific, we find the opposite. When a firm reduces pollution, investors are willing to pay more for its shares if the CEO frames the decision as driven by concern for the environment, rather than by profit maximization. Holding the dividend and the environmental impact fixed, a purely prosocial intention generates a positive “intention premium,” while an explicitly profit-only intention generates a discount. On average, we find that people are willing to pay a premium of roughly 7 cents per share when management expresses prosocial intent, representing roughly 3% of the cash value of the stock.
Inside the experiment: praise, blame, and ambiguity
Participants first complete a short quiz to ensure they understand basic stock valuation: a share that pays a certain, immediate dividend of $X should be worth $X to a purely profit-maximizing investor. This primes respondents toward financial thinking.
They are then placed in the role of shareholders and asked—over 18 rounds—to state their maximum willingness to pay for a stock that pays a one-time dividend and has a specified effect on pollution relative to industry standards. Each vignette varies along three dimensions: the dividend per share, the environmental externality (more or less pollution than the industry standard), and a short CEO statement about the firm’s intentions. For example, in the profit intent treatment, the CEO states: “We use this production technique because we think it will generate the most profits. Our priority as a company is maximizing profits.”
We structure our treatments into three groups of conditions: READ MORE »
