Going for broke to help the cause: When does a social mission lead to riskier investment decisions?

• In Event: Investment and Resource Allocation Decisions

Abstract

Donors and other stakeholders express concerns about the riskiness of investment activities undertaken by social-mission organizations. These concerns have some merit: Investment activities at social-mission organizations significantly underperform market benchmarks and earn negative abnormal returns, and this underperformance is worse at social-mission organizations with more funds available for investment (larger endowment size). We identify the mission itself as a potential explanation for such underperformance. Specifically, we find a social mission can motivate riskier investment decisions, and this effect is stronger as endowment size increases. Our results help paint a more complete picture of investment decisions in social-mission organizations by providing insights into why a social mission leads to riskier investment decisions. Our results suggest control mechanisms designed to prevent overly risky investment decisions will be especially beneficial in social-mission organizations with relatively larger endowment funds available for investment.

Authors

• Seung Kyo Ahn, University of Wisconsin-Madison

• Jongwoon Choi, University of Wisconsin-Madison

• Tyler F Thomas, University of Wisconsin-Madison