Journal ArticleDOI
The Effect of Green Investment on Corporate Behavior
TLDR
In this paper, the authors explore the effect of exclusionary ethical investing on corporate behavior in a risk-averse, equilibrium setting and show that it leads to polluting firms being held by fewer investors since green investors eschew polluting stocks.Abstract:
This paper explores the effect of exclusionary ethical investing on corporate behavior in a risk-averse, equilibrium setting. While arguments exist that ethical investing can influence a firm's cost of capital, and so affect investment, no equilibrium model has been presented to do so. We show that exclusionary ethical investing leads to polluting firms being held by fewer investors since green investors eschew polluting firms' stock. This lack of risk sharing among non-green investors leads to lower stock prices for polluting firms, thus raising their cost of capital. If the higher cost of capital more than overcomes a cost of reforming (i.e., a polluting firm cleaning up its activities), then polluting firms will become socially responsible because of exclusionary ethical investing. A key determinant of the incentive for polluting firms to reform is the fraction of funds controlled by green investors. In our model, empirically reasonable parameter estimates indicate, that more than 20 % green investors are required to induce any polluting firmss to reform. Existing empirical evidence indicates that at most 10% of funds are invested by green investors.read more
Citations
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Journal ArticleDOI
Does Corporate Social Responsibility Affect the Cost of Capital
TL;DR: This paper examined the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of US firms and found that firms with better CSR scores exhibit cheaper equity financing.
Journal ArticleDOI
Does It Pay to Be Green? A Systematic Overview
Ambec Stefan,Lanoie Paul +1 more
TL;DR: In this paper, the authors systematically analyze the mechanism involved in each of the following channels of potential revenue increase or cost reduction owing to better environmental practices: (a) better access to certain markets; (b) differentiating products; (c) selling pollution-control technology; (d) risk management and relations with external stakeholders; (e) cost of material, energy, and services; (f)cost of cap...
Journal ArticleDOI
Socially responsible investments: Institutional aspects, performance, and investor behavior
TL;DR: In this paper, the authors provide a critical review of the literature on socially responsible investments (SRI) and conclude that existing studies hint but do not unequivocally demonstrate that SRI investors are willing to accept suboptimal financial performance to pursue social or ethical objectives.
Journal ArticleDOI
The price of sin: The effects of social norms on markets
Harrison Hong,Marcin Kacperczyk +1 more
TL;DR: For example, this paper found that sin stocks are less held by norm-constrained institutions such as pension plans as compared to mutual or hedge funds that are natural arbitrageurs, and they receive less coverage from analysts than do stocks of otherwise comparable characteristics.
Journal ArticleDOI
Environmental risk management and the cost of capital
TL;DR: In this paper, a study of 267 U.S. firms showed that improved environmental risk management is associated with a lower cost of capital and higher tax benefits associated with the ability to add debt.
References
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Journal ArticleDOI
Risk, Return, and Equilibrium: Empirical Tests
Eugene F. Fama,James D. MacBeth +1 more
TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
Journal ArticleDOI
Does it pay to be green? an empirical examination of the relationship between emission reduction and firm performance
Stuart L. Hart,Gautam Ahuja +1 more
TL;DR: In this paper, the relationship between emissions reduction and firm performance is examined empirically for a sample of S&P 500 firms using data drawn from the Investor Responsibility Research Center's Corporate Environmental Profile and Compustat.
Journal ArticleDOI
Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds
TL;DR: In this paper, the investment performance of socially responsible mutual funds is analyzed and the authors suggest that doing well while doing good is not a good investment strategy for socially responsible fund managers.
Journal ArticleDOI
An investigation of corporate social responsibility reputation and economic performance
TL;DR: In this article, the authors show that large U.S. manufacturing companies with better reputations for social responsibility outperformed companies with poorer reputations during the six-year period 1982-1987, and provided investors better stock market returns and lower risk.