Review of Finance Vol. 27 No. 6 2023

Does Socially Responsible Investing Change Firm Behavior?

Davidson Heath¹; Daniele Macciocchi²; Roni Michaely³; Matthew C. Ringgenberg¹

¹ University of Utah, Salt Lake City, UT, USA · ² University of Miami, Coral Gables, FL, USA · ³ Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China

Abstract

Using micro-level data, we examine the behavior of socially responsible investment (SRI) funds. SRI funds select firms with lower pollution, more board diversity, higher employee satisfaction, and better workplace safety. Yet, both in the cross-section and using an exogenous shock to SRI capital, we find that SRI funds do not significantly change firm behavior. Moreover, we find little evidence that they try to impact firm behavior using shareholder proposals. Our results suggest that SRI funds are not greenwashing, but they are impact washing; they invest in a portfolio of firms with better environmental and social conduct but do not follow through on their promise of impact.

DOI

10.1093/rof/rfad002

Volume

27

Issue

6

Pages

2057-2083

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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