Managers’ green investment disclosures and investors’ reaction

Although managers’ green investments have no impact on future cash flows in our experimental markets, investors respond favorably when managers make and disclose an investment and highlight the societal benefits rather than the cost to the company. Managers anticipate investors’ reaction and therefore often disclose their investment and the associated societal benefits. Managers and other shareholders benefit from investors’ reaction, but the investment cost always exceeds this benefit, demonstrating that managers make green investments because they value the societal benefits. Collectively, our findings show that both investors and managers tradeoff wealth for societal benefits and help explain managers’ corporate social responsibilty disclosures. •Our experiment examines whether managers make unprofitable green investments, what they disclose, and how investors react.•Managers often make green investments even though this decreases their own and other current shareholders’ payoffs.•Managers disclose their green investments by focusing on the societal benefits rather than the costs to the company.•Investors bids lower the cost of investment to managers and current shareholders when the societal benefits are disclosed.•When managers make very large investments, they disclose that they made an investment but not the amount.