The Shared Cost of Pursuing Shareholder Value

Abstract: We propose a portable framework to infer shareholders' preferences, their influence on firms' prosocial decisions, and the resulting economic consequences for firms and marginalized shareholders. Using quasi-experimental variations tied to media coverage of firms' annual general meetings, we find that shareholders support costly prosocial actions, such as covid-related donations and private sanctions on Russia, when these generate image gains. In contrast, shareholders that the public associates less to a specific firm, such as financial corporations with large portfolios, oppose such actions. These prosocial expenditures crowd out investments at exposed firms, reducing productivity and profits by 1 to 3%. Pursuing the values of some shareholders thus comes at a cost to others, which shareholders' monitoring motivated by heterogeneous preferences could mitigate. By highlighting the interplay between shareholder influence and firms' objectives, this study contributes to the broader debate on activism, showing how unobservable internal conflicts drive corporate responses to societal pressures.