Are All ESG Funds Created Equal? Only Some Funds are Committed (with Pingle Wang and Kelsey Wei)
There is significant heterogeneity in incentives of fund managers to engage with portfolio firms. We argue that differences in ESG funds’ incentives affect their information acquisition, investment strategies, engagement activities, and real impacts. Our findings support these predictions. Conditional on similarly large ESG investments, those funds with higher incentives to engage, i.e., committed ESG funds, differ significantly from other ESG funds along these dimensions. Moreover, committed ESG funds have outperformed other ESG funds within longer held positions and within ESG stocks. Our findings highlight that committed ESG funds view ESG as a value driver.
The Changing Landscape of Corporate Governance Disclosure: Impact on Shareholder Voting (with David Becher and Jared Wilson)
Many mutual funds satisfy their fiduciary duty to vote on portfolio firms’ directors by following the recommendations of proxy advisory service companies such as ISS. However, companies complain that ISS recommendations are misguided. A rational response to such frictions would be for firms to decrease investors’ costs of evaluating directors’ expertise. Consistent with this conjecture, we find that firms increasingly disclose directors’ expertise in image-based formats. These disclosures lead to less reliance on ISS, particularly in cases where ISS’s recommendations tend to be less precise. An analysis of the channels underlying the higher voting support reveals both the upside and downside of these image-based disclosures: on average these disclosures are informative, but they also facilitate window dressing.
Firms' Transition to Green: Innovation versus Lobbying (with Sungjoung Kwon and Michela Verardo)
Competitive challenges and regulatory uncertainty associated with the green transition should incentivize firms to innovate and to sway regulatory policy. We develop a novel method to identify “green” and “brown” environmental lobbying. We find that firms’ lobbying is unrelated to innovation: green innovators are equally likely to lobby green or brown. Firms’ environmental lobbying is explained by current business operations and predicts real actions, for example future emissions. In contrast, green innovation is better characterized as a real option, to be exercised only if necessary. Despite the informativeness of lobbying, neither environmental ratings nor UNPRI signatories’ investments incorporate this signal.
Corporate Lobbying of Bureaucrats (with Ekaterina Volkova)
We find that 80% of companies that lobby Congress also lobby executive agencies. Although executive agencies are not beholden to companies for campaign contributions, the agencies are nevertheless influenced by lobbying: companies' lobbying leads to more favorable rules, more special exemptions, more government contracts, and more favorable decisions on enforcement actions. Agencies' bestowment of favors appears to be motivated by opportunities within the private sector: lobbying is significantly greater among agencies that have stronger revolving door relations with the private sector. Following a negative exogenous shock to agency power, the Supreme Court's Chevron decision, firms engaged in agency lobbying experienced negative abnormal returns, underscoring the strategic value of lobbying agencies.
We document a significant gender pay gap among business professors at Florida public universities, where sunshine laws and associated pay transparency should contribute to pay equality. The pay gap is largest among full professors at 6.7%. Two factors contribute to this gap. First, women experience lower pay-for-performance, which contributes to larger pay gaps at higher seniority levels. Second, women are disproportionately likely to work at schools with low pay. Our analysis of mitigating factors suggests that implicit biases contribute to the gap, but such biases can be ‘unlearned’ when people interact with more female faculty within their university.