Abstract
Milton Friedman famously suggested that firms ought not divert profits toward public goods because shareholders can better make these contributions themselves. Despite this, activist shareholders are increasingly successful in persuading firms to be "socially responsible." We study firm behavior when shareholders care about public goods as well as profits and when managerial contracts reflect these concerns. Under these ideal conditions, managers redirect more profits toward public goods than shareholders would when acting separately-shareholders are poorer but happier. Further, so long as the public good is sufficiently desirable, the manager selects the socially optimal level of output, despite the mismatch between shareholder preferences and those of society at large.
Item Type: | Journal article |
---|---|
Faculties: | Munich School of Management > Institute for Strategy, Technology and Organization |
Subjects: | 300 Social sciences > 330 Economics |
ISSN: | 0025-1909 |
Language: | English |
Item ID: | 78176 |
Date Deposited: | 15. Dec 2021, 14:43 |
Last Modified: | 31. Aug 2023, 13:03 |