Does Money Talk? Divestitures and Corporate Environmental and Social Policies

52 Pages Posted: 24 Jun 2019 Last revised: 2 May 2022

See all articles by Nickolay Gantchev

Nickolay Gantchev

University of Warwick - Warwick Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies

Multiple version iconThere are 2 versions of this paper

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

Gantchev, Nickolay and Giannetti, Mariassunta and Li, Rachel, Does Money Talk? Divestitures and Corporate Environmental and Social Policies (May 1, 2022). Review of Finance (Forthcoming), European Corporate Governance Institute – Finance Working Paper No. 634/2019, Swedish House of Finance Research Paper No. 19-9, Available at SSRN: https://ssrn.com/abstract=3409455 or http://dx.doi.org/10.2139/ssrn.3409455

Nickolay Gantchev (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www.NickolayGantchev.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://cepr.org

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://ecgi.global/users/nickolay-gantchev

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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