Working papers
Are All ESG Funds Created Equal? Only Some Funds are Committed (with Pingle Wang and Kelsey Wei)
Although flows into ESG funds have risen dramatically, it remains unclear whether these funds are truly committed to sustainable investments and how much their investments matter. We shed light on this debate by examining the incentives of fund managers. We find that conditional on similarly large ESG investments, ESG funds vary in their incentives to engage with portfolio firms. ESG funds with higher incentives to engage – committed ESG funds – hold their ESG investments longer, pay more attention to firms’ ESG risk exposure and implement less negative screening. Strikingly, only investments by committed ESG funds contribute to real ESG-improvements, and these funds have outperformed other ESG funds on their ESG holdings. Our paper highlights the importance of incentives when assessing the real impacts of sustainable investments and calls for greater investor awareness of a hidden form of greenwashing.
Scheduled for presentation at the 2024 AFA meetings
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.
Scheduled for presentation at the 2024 AFA meetings
Firms' Transition to Green: Innovation versus Lobbying (with Sungjoung Kwon and Michela Verardo)
Innovation in green technologies is viewed as a crucial driver of the transition to greener modes of production and consumption. However, there is considerable uncertainty regarding the speed of this transition. Motivated by the fact that regulatory developments represent one key source of uncertainty, we examine how firms complement their innovation activities with efforts to influence the regulatory agenda through lobbying. On average, firms engaging in green innovation do not lobby to increase demand for these products and services. Rather, many green innovators represent firms whose current business operations are mostly brown, and these firms employ lobbying to maintain the status quo, i.e., to protect their brown cash flows into the future. Relative to other green innovators, firms that engage in more brown lobbying have higher rates of future adverse environmental incidents. Evidence suggests that environmental rating agencies do not completely recognize these effects.
The Broader Impact of IPOs (with Feng Jiang and Yiming Qian)
The decrease in companies going public has received widespread attention, and the associated costs are widely debated. We document one widespread benefit of IPOs: increased stock market participation, including among people not directly associated with the heretofore private firm. Stock market participation represents a key factor toward building wealth. We find that local IPOs increase households’ propensity to own stock and their percent equity holdings. The attention channel drives effects: local IPOs attract attention to the market, through increased information production and publicity. The wealth channel has little influence, consistent with local IPOs not generating wealth shocks for most households.
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.