Catering to Environmental Premium in Green Venture Financing: Evidence from a Bert-Based Deep Learning Approach

45 Pages Posted: 29 Jul 2023 Last revised: 11 Oct 2023

See all articles by Mingze Gao

Mingze Gao

Macquarie University, Macquarie Business School

Henry Leung

University of Sydney Business School; Financial Research Network (FIRN)

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Thi Huyen Chi Vu

The University of Sydney, Business School, Discipline of Finance, Students

Date Written: June 11, 2023

Abstract

We apply a deep learning approach of Bidirectional Encoder Representations from Transformers (BERT) on the Crunchbase description of each venture and glossaries of environmentally related terms set out in the Global Reporting Initiative (GRI) Standards to identify “green ventures.” We find that pre-IPO investors cater to a higher environmental premium, measured by the log difference in the average market-to-book ratios of green and brown stocks, via increasing investments in green ventures in later financing stages. In particular, pre-IPO investors speed up the exit process to capitalize on the high environmental premium. In contrast, green ventures in seed financing rounds receive less funding, possibly due to capital, time, and effort constraints of the pre-IPO investors. Finally, we document that more experienced pre-IPO investors and those that are in closer proximity to green ventures are more responsive to the environmental premium.

Keywords: Catering, Environmental premium, Green ventures, BERT, Deep learning, Pre-IPO investors

JEL Classification: D22, G20, G23, G24, L26

Suggested Citation

Gao, Mingze and Leung, Henry and Lin, Tse-Chun and Vu, Thi Huyen Chi, Catering to Environmental Premium in Green Venture Financing: Evidence from a Bert-Based Deep Learning Approach (June 11, 2023). Available at SSRN: https://ssrn.com/abstract=4522222 or http://dx.doi.org/10.2139/ssrn.4522222

Mingze Gao

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

HOME PAGE: http://mingze-gao.com

Henry Leung (Contact Author)

University of Sydney Business School ( email )

402, H69
The University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Thi Huyen Chi Vu

The University of Sydney, Business School, Discipline of Finance, Students ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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