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Corporate Culture and Socially Responsible Investing

Paper Session

Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Seaport C
Hosted By: American Finance Association
  • Chair: Christopher Parsons, University of Washington

Social Progress and Corporate Culture

Gary Gorton
,
Yale University
Alexander Zentefis
,
Yale University

Abstract

Social progress through improved treatment of minority groups (the embrace of anti-racist and anti-sexist norms, for example) may or may not spread to corporate cultures through competition. Sometimes the market fails to adapt on its own and government must pass legislation to secure changes in the workplace. We show how corporate culture is determined, why a variety of corporate cultures exist, and whether progressive corporate cultures can oust regressive ones.

Responsible Institutional Investing Around the World

Rajna Gibson Brandon
,
University of Geneva
Philipp Krueger
,
University of Geneva and Swiss Financial Institute
Pedro Matos
,
University of Virginia
Tom Steffen
,
University of Geneva

Abstract

We explore a novel survey on responsible investing by institutional investors around the world and match it to archival data on equity portfolio holdings. We document that institutions that commit to responsible investing exhibit different environmental, social and governance (ESG) portfolio-level scores but this is not the case for US-domiciled institutions. We also examine if different ESG implementation strategies (e.g., screening, integration, engagement) affect portfolio-level ESG scores but find limited evidence. Finally, we find that responsible investing does not enhance portfolio returns but acts more as a risk mitigation tool.

Real Effects of Climate Policy: Financial Constraints and Spillovers

Sohnke Bartram
,
University of Warwick and CEPR
Kewei Hou
,
Ohio State University
Sehoon Kim
,
University of Florida

Abstract

We document that localized policies aimed at mitigating climate risk can have unintended consequences due to regulatory arbitrage by firms. Using a difference-in-differences framework to study the impact of the California cap-and-trade program with US plant level data, we show that financially constrained firms shift emissions and plant ownership from California to other states. In contrast, unconstrained firms do not make such adjustments. Overall, neither constrained nor unconstrained firms reduce their total emissions when only a subset of their plants are affected by the cap-and-trade rule, undermining the effectiveness of the policy.
Discussant(s)
Luigi Zingales
,
University of Chicago
Paul Smeets
,
Maastricht University
William Mullins
,
University of California-San Diego
JEL Classifications
  • G3 - Corporate Finance and Governance