All Publications
Despite growing regulatory concerns about potential overcharging of sustainable investors, empirical evidence is lacking. In two controlled laboratory-in-the-field experiments with 415 professional financial advisors from Europe and the United States and an incentivized survey, we identify two distinct but interacting effects. First, advisors charge sustainable investors a premium. This premium persists even when accounting for differences in skill, effort, and costs. Second, advisors impose higher fees on clients with low financial literacy. These factors interact. Sustainable investors with low financial literacy are charged the highest fee, whereas those with high financial literacy do not pay a sustainability premium. Our findings suggest that advisors extract additional fees for sustainable investment mandates but avoid overcharging sustainable investors with high financial literacy.
We conduct a large-scale survey experiment with clients of a major German retail bank to examine whether the temporal framing of a tax stimulus as a permanent positive income shock affects consumption behavior. The income shock derives from the abolishment of the German solidarity surcharge on personal income taxes. Participants are randomly assigned to receive information about their additional disposable income in one of three formats: Euros per month (control), Euros per year (yearly treatment), or Euros per ten-year period (10-yearly treatment). We survey participants before the abolishment of the solidarity surcharge and find a statistically and economically significant impact of temporal framing on the intended use of the tax cut. The yearly and 10-yearly treatment groups’ average intended share of the tax cut for spending is 8.0 and 9.4 percentage points lower and for saving is 5.4 and 6.3 percentage points higher compared to the control group. A follow-up survey, six months after the tax rebate came into effect, reveals that participants largely adhered to their intentions, unless the increase in disposable income was diminished by other regulation changes. Those exposed to the yearly and 10-yearly treatments report having spent 7.0 and 8.4 percentage points less and report having saved 7.7 and 8.2 percentage points more relative to the control group. Treatment effects are particularly pronounced for larger tax cuts and among participants with low financial literacy and low cognitive reflection, who are more susceptible to the temporal framing of the rebate.
We conduct a field experiment with clients of a German universal bank to
explore the impact of peer information on sustainable retail
investments. Our results show that infor-mation about peers’ inclination
towards sustainable investing raises the amount allocated to stock
funds labeled sustainable, when communicated during a buying decision.
This effect is primarily driven by participants initially
underestimating peers’ propensity to invest sustainably. Further,
treated individuals indicate an increased interest in addi-tional
information on sustainable investments, primarily on risk and return
expectations. However, when analyzing account-level portfolio holding
data over time, we detect no spillover effects of peer information on
later sustainable investment decisions.
Using a large European bank dataset, we show that in response to negative ESG news exposing controversial business practices of dividend-paying firms, investors amplify their consumption from dividend income, compared to dividends from non-controversial firms. This increased consumption is immediate, occurring on the dividend payout day. We control for selection effects and rule out attention and adjustments to the dividend payout size as mechanisms. Instead, our results are consistent with laboratory evidence showing that people who earn money by violating social norms counter resulting negative emotions with mood-enhancing behavior, such as increased consumption. This aligns with the principles of emotion regulation theory. We demonstrate the applicability of emotion regulation theory outside of the laboratory in an important real-world context, financial markets.
