Value versus Values: Does Stock Liquidity Affect Corporate Environmental Policies?

Abstract

Distinguishing value from values has been a challenge in sustainable investing (Starks 2023). Leveraging the Tick Size Pilot Program (TSP)—a natural experiment that increased treatment firms’ tick size from one cent to five cents—we find that green institutional investors with a relatively low willingness-to-pay for environmental objectives (i.e., value investors) significantly influence corporate environmental policies. During the TSP, these value investors reduced their divestment intensity following environmental incidents at treatment firms, relative to control firms. Treatment firms’ environmental ratings declined, with the drop most pronounced among those highly exposed to exit threats on environmental issues.

Keywords: Stock liquidity, Environment, Institutional investors, Divest, Voice, Value versus Values

JEL Classification: G1, G2, G3, Q5