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Martin Oehmke (LSE) – "A Theory of Socially Responsible Investment"
CREST Microeconomics Seminar :
Date: 16th Oct. 2019
Place: Room 3001.
Martin Oehmke (LSE) – “A Theory of Socially Responsible Investment”, joint work with Marcus Opp
“Based on a canonical model of corporate financing under agency frictions, we characterize how and when socially responsible investors can affect firm behavior and derive an investment criterion, the social profitability index (SPI), to guide scarce socially responsible capital. The SPI highlights the importance of counterfactual social costs that would arise in the absence of socially responsible investors. Accordingly, most existing ESG metrics are not suited to guide investment decisions. Our model also uncovers a complementarity between financial capital and socially responsible capital: The presence of financial investors without regard for externalities can raise welfare relative to a setting with only socially responsible investors.”
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