We invite you to a FAIR Seminar with Zwetelina Iliewa. Zwetelina is an Assistant Professor (tenure track) at the Department of Economics at the University of Bonn. Her research interests are in the fields of behavioural and experimental economics and behavioural finance.
Title: Corporate Actions as Moral Issues
Abstract: Finance research increasingly focuses on non-pecuniary utility in addition to more traditional monetary utility. We study whether, by how much, and why non-pecuniary utility affects people’s evaluation of a broad range of corporate actions. The corporate actions we consider include decisions related to environmental, social, and governance (ESG) concerns, as well as other classic textbook decisions related to maximizing firm value, such as CEO pay, value-enhancing layoffs, cost-cutting, stock buybacks, etc. Using a series of online experiments with a representative sample of the US population, we first establish that (i) for all corporate actions we consider, non-pecuniary utility is quantitatively important, and respondents would frequently like the firm to forego positive NPV decisions in favor of doing “what is right”; (ii) non-pecuniary considerations are more important for decisions related to the treatment of workers than for more recently emphasized ESG-related decisions, such as renewable energy usage and workforce diversity); (iii) people are not more willing to implement an immoral action when they are in the position of a shareholder than when they are in the position of customers or employees. In a series of additional tests, we establish moral considerations as one important driver of non-pecuniary utility. In particular, respondents’ degree of moral universalism is strongly linked to respondents’ views on corporate actions and explains preferences much better than gender or party affiliation. Our results have broad implications for theoretical and empirical work in financial economics, as well as for finance practitioners.