Download This PaperDoes Money Talk? Divestitures and Corporate Environmental and Social Policies
Review of Finance (Forthcoming)
European Corporate Governance Institute – Finance Working Paper No. 634/2019
52 Pages Posted: 24 Jun 2019 Last revised: 2 May 2022
There are 2 versions of this paper
Does Money Talk? Divestitures and Corporate Environmental and Social Policies
Does Money Talk? Market Discipline Through Selloffs and Boycotts
Date Written: May 1, 2022
Abstract
Can shareholders’ divestitures and threats of exit trigger improvements in firms’ environmental and social (E&S) policies? We show that E&S incidents are followed by some, but relatively small, divestitures. Nevertheless, following E&S incidents, firms with a one-standard-deviation higher E&S-conscious institutional ownership decrease their greenhouse gas emissions by 36.5% and improve their E&S scores by 7.2% more than other firms if their managers receive equity compensation. We do not observe any improvements associated with sales in E&S-conscious countries. Our results suggest that the threats of future exits and divestitures can improve E&S policies if shareholders are E&S-conscious and managers’ compensation is linked to the stock price.
Keywords: Corporate social responsibility; Real effects of financial markets; Institutional investors; Sustainability; Corporate governance
JEL Classification: G15, G23, G30, M14
Suggested Citation: Suggested Citation
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