Outsourcing Climate Change

71 Pages Posted: 13 Jan 2021 Last revised: 3 Jan 2024

See all articles by Rui Dai

Rui Dai

Wharton Research Data Services (WRDS)

Rui Duan

York University - Schulich School of Business

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Date Written: January 7, 2021

Abstract

This paper examines how firms combat climate change and the motivations behind their strategies. Using firm-level carbon emissions and import volume data, we find pervasive evidence of firms outsourcing their emissions to foreign suppliers rather than investing in abatement—a strategy not fully explained by production offshoring, regulatory arbitrage, and supply chain shocks. Instead, our findings reveal that agency problems play a significant role in facilitating corporate carbon outsourcing. While the outsourcing strategy improves short-term profitability, it adversely affects firm value and increases the cost of equity capital, suggesting that investors demand compensation for their exposure to such transition risks.

Keywords: Outsourcing Emissions, Imports, Stakeholders, Reputational Risk, Green Technologies, Carbon Premium

JEL Classification: G23, G30, G34, M14

Suggested Citation

Dai, Rui and Duan, Rui and Liang, Hao and Ng, Lilian, Outsourcing Climate Change (January 7, 2021). European Corporate Governance Institute – Finance Working Paper No. 723/2021, Available at SSRN: https://ssrn.com/abstract=3765485 or http://dx.doi.org/10.2139/ssrn.3765485

Rui Dai

Wharton Research Data Services (WRDS) ( email )

3819 Chestnut St
Suite 300
Philadelphia, PA PA 19104
United States

Rui Duan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

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

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

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

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