Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies

113 Pages Posted: 7 Jun 2022 Last revised: 14 Mar 2024

See all articles by Daniel Garrett

Daniel Garrett

University of Pennsylvania - Finance Department

Ivan Ivanov

Federal Reserve Bank of Chicago

Date Written: March 11, 2024

Abstract

We study how restricting intermediary contracting over ESG policies distorts financial market outcomes. In 2021 Texas prohibited municipalities from hiring banks with certain ESG policies, leading to the abrupt exit of five large municipal bond underwriters. Issuers with historical relationships with the barred underwriters face higher uncertainty and borrowing costs after enactment of the laws, amounting to $300-$500 million in additional interest on $31.8 billion borrowed. These effects are consistent with deterioration in underwriter competition and loss of relationship-specific assets. We do not find that underwriter distribution network access or capacity constraints have a major impact on borrowing costs.

Keywords: ESG Policies, Public Finance, Municipal Bonds, Bank Competition

JEL Classification: G24, G28, H74

Suggested Citation

Garrett, Daniel and Ivanov, Ivan, Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies (March 11, 2024). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=4123366 or http://dx.doi.org/10.2139/ssrn.4123366

Daniel Garrett (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://fnce.wharton.upenn.edu/profile/danielgg/#research

Ivan Ivanov

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://ivantivanov.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
6,343
Abstract Views
32,305
Rank
2,297
PlumX Metrics