Social Responsibility: Citizens vs. Shareholders
With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
Authors: Robin Döttling, Doron Levit, Nadya Malenko, Magdalena Rola-Janicka
Abstract:
We study the interplay between a “one person-one vote” political system and a “one share-one vote” corporate governance regime. The political system sets Pigouvian subsidies, while corporate governance determines firm-specific public good investments. Our analysis highlights a two-way feedback effect. In a frictionless economy, shareholder democracy is irrelevant: the political system fully offsets any effects of shareholder influence. With frictions in public policy provision, pro-social corporations fill the void of a dysfunctional regulatory system and increase the provision of public goods—demonstrating the benefit of shareholder democracy. Nevertheless, shareholder democracy can hurt a typical citizen because of the representation problem: it favors the preferences of the wealthy. If shareholders have extreme views, there can be a backlash against ESG initiatives, and the political system may undo or tax corporate social responsibility measures. Advancements in financial technologies that increase investor diversification or enable pass-through voting have important implications for these trade-offs of shareholder democracy.
About Prof. Rola-Janicka:
Prof. Rola-Janicka is an Assistant Professor in Finance at Imperial College London. Prior to this she was at Tilburg University.
Her research interests are in financial intermediation, political economy of finance and climate finance.
She is a member of Finance Theory Group. She co-organizes PolEconFin and the associatedCEPR-Stigler conference series on the Political Economy of Finance, as well as London FIT Network.
Language: English
This is a free seminar. Registration is mandatory.
Cold lunches are provided to registered participants.
Supported by the Luxembourg National Research Fund (FNR) 17984041