Download This PaperESG Shareholder Engagement and Downside Risk
Review of Finance, Forthcoming
AFA 2018 paper
European Corporate Governance Institute – Finance Working Paper No. 671/2020
55 Pages Posted: 25 Nov 2016 Last revised: 25 Oct 2023
Date Written: September 28, 2023
Abstract
We show that engagement on environmental, social, and governance issues can benefit shareholders by reducing firms’ downside risks. We find that the risk reductions (measured using value at risk and lower partial moments) vary across engagement types and success rates. Engagement is most effective in lowering downside risk when addressing environmental topics (primarily climate change). Further, targets with large downside risk reductions exhibit a decrease in environmental incidents after the engagement. We estimate that the value at risk of engagement targets decreases by 9% of the standard deviation after successful engagements, relative to control firms.
Keywords: ESG, Shareholder Activism, Downside Risk, Corporate Governance, Climate Change
JEL Classification: G32, M14
Suggested Citation: Suggested Citation
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
Laura T. Starks
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)