Showing papers on "Divestment published in 2018"

Impacts of the Fossil Fuel Divestment Movement: Effects on Finance, Policy and Public Discourse

Abstract: The fossil fuel divestment movement campaigns for removing investments from fossil fuel companies as a strategy to combat climate change. It is a bottom-up movement, largely based in university student groups, although it has rapidly spread to other institutions. Divestment has been criticised for its naivete and hard-line stance and dismissed as having little impact on fossil fuel finance. I analyse the impact of divestment through reviewing academic and grey literature, complemented by interviews with activists and financial actors, using a theoretical framework that draws on social movement theory. While the direct impacts of divestment are small, the indirect impacts, in terms of public discourse shift, are significant. Divestment has put questions of finance and climate change on the agenda and played a part in changing discourse around the legitimacy, reputation and viability of the fossil fuel industry. This cultural impact contributed to changes in the finance industry through new demands by shareholders and investors and to changes in political discourse, such as rethinking the notion of ‘fiduciary duty.’ Finally, divestment had significant impact on its participants in terms of empowerment and played a part in the revitalisation of the environmental movement in the UK and elsewhere.

Explaining the effect of rapid internationalization on horizontal foreign divestment in the retail sector: An extended Penrosean perspective

Abstract: We adopt a Penrosean perspective to study the effect of rapid international expansion on the subsequent divestment of international operations. We draw on regional strategy theory and differentiate Penrosean managerial resources by their geographical fungibility to argue that the effect of rapid international expansion on the divestment of international operations varies with the regional patterns of firms' international expansion and international experience. We test our hypotheses using two-stage least squares (2SLS) estimation on data that capture the international expansion and divestment of retailers over the period 2003-2012.

Divestment prevails over the green paradox when anticipating strong future climate policies

Abstract: Fossil fuel market dynamics will have a significant impact on the effectiveness of climate policies 1 . Both fossil fuel owners and investors in fossil fuel infrastructure are sensitive to climate policies that threaten their natural resource endowments and production capacities2–4, which will consequently affect their near-term behaviour. Although weak in near-term policy commitments5,6, the Paris Agreement on climate 7 signalled strong ambitions in climate change stabilization. Many studies emphasize that the 2 °C target can still be achieved even if strong climate policies are delayed until 20308–10. However, sudden implementation will have severe consequences for fossil fuel markets and beyond and these studies ignore the anticipation effects of owners and investors. Here we use two energy–economy models to study the collective influence of the two central but opposing anticipation arguments, the green paradox 11 and the divestment effect 12 , which have, to date, been discussed only separately. For a wide range of future climate policies, we find that anticipation effects, on balance, reduce CO2 emissions during the implementation lag. This is because of strong divestment in coal power plants starting ten years ahead of policy implementation. The green paradox effect is identified, but is small under reasonable assumptions. Fossil fuel market response to future climate policies could result in divestment in anticipation, or accelerated extraction—the green paradox. This study projects reduced emissions due to anticipation effects prior to policy implementation.

Divestment discourse: war, justice, morality and money

Abstract: The fossil fuel divestment movement has been a vibrant novel development in climate change politics in recent years, particularly in North America. Here, the character of the discourse used to prom...

Elevating the Role of Divestment in Socially Responsible Investing

Abstract: The divest movement has focused attention on strategic and ethical differences in the practice of socially responsible investing (SRI) and highlighted an unnecessary bifurcation of best-of-class engagement and divestment. Although best-of-class engagement is favored as a contemporary and pragmatic approach, this paper calls for a more pronounced recognition of absolute dealbreakers and divestment as an underpinning for best-of-class engagement. After linking divestment and best-of-class engagement to their foundations of absolutism and relativism, respectively, I critique best-of-class engagement and argue that without a distinct and explicit role for divestment, best-of-class strategies are ethically and strategically fraught. Following a discussion of which types of issues suggest divestment or best-of-class engagement, I identify the Norway Government Pension Fund as a noteworthy example, and posit that divestment and engagement are best presented and employed in tandem, particularly for issues that have yet to be addressed by law and convention.

The Transformation of Retail Markets in Lisbon: An Analysis through the Lens of Retail Gentrification

Abstract: The relationship between cities and retail is strong and historical. This article focuses on the analysis of traditional retail markets, a retail concept that has lost its relevance in previous decades. However, more recently there has been a reversal of this trend following increased interest in the rehabilitation of these markets. This reinvestment follows the divestment stage and is characterised by the active role that private interests play in the management and operation of these retail precincts. This evolutionary process challenges the capacity of traditional retailers to continue their operations in these markets and the ability of disadvantaged customers to continue shopping there. Furthermore, this development may be indicative of retail gentrification. In this article, the ongoing process of market rehabilitation in Lisbon is analysed to determine whether evidence of retail gentrification has occurred. The use of case studies forms a significant part of the methodology. In addition, el...

The role of college and university faculty in the fossil fuel divestment movement

Abstract: Colleges and universities have played a critical role in the growing social movement to divest institutional endowments from fossil fuels. While campus activism on fossil fuel divestment has been driven largely by students and alumni, faculty are also advocating to their administrators for institutional divestment from fossil fuels. This article characterizes the role of faculty by reviewing signatories to publicly available letters that endorse fossil fuel divestment. Analysis of 30 letters to administrators signed by faculty at campuses throughout the United States and Canada reveals support for divestment from 4550 faculty across all major fields of inquiry and scholarship, and all types of faculty positions. Of these signers, more than 225 have specific expertise in climate change or energy. An in-depth analysis of 18 of these letters shows that a significantly greater proportion of tenured faculty sign open letters of support for divestment than do not-yet-tenured tenure-track faculty (15.4% versus 10.7%), perhaps reflecting concerns among not-yet-tenured faculty that such support might jeopardize their career advancement. This analysis suggests that faculty support for the divestment movement is more widespread than commonly recognized; this movement is more mainstream, and broader-based, than is often recognized. Revealing the scope and scale of faculty support for fossil fuel divestment may encourage additional faculty to engage, support and endorse this growing social movement that highlights the social impact of investment decisions, and calls upon colleges and universities to align their investment practices with their academic missions and values.

Real Options Models of the Firm, Capacity Overhang, and the Cross Section of Stock Returns

Abstract: We use a stochastic frontier model to obtain a stock-level estimate of the difference between a firm's installed production capacity and its optimal capacity. We show that this "capacity overhang" estimate relates significantly negatively to the cross-section of stock returns, even when controlling for popular pricing factors. The negative relation persists among small and large stocks, stocks with more or less reversible investments, and in good and bad economic states. Capacity overhang helps explain momentum and profitability anomalies, but not value and investment anomalies. Our evidence supports real options models of the firm featuring valuable divestment options.

Experience as a source of knowledge in divestiture decisions: emerging issues and knowledge management implications

Abstract: Purpose This paper aims to analyse the idea that experience acts as an antecedent in divestiture and triggers an organisational learning process that enables the divesting firm to convert experience into knowledge, increasing the probability that a firm will undertake subsequent divestitures. Design/methodology/approach The approach is quantitative. The research project used a case–control design, with a sample consisting of 274 divesting and non-divesting firms. Given the dichotomous nature of the dependent variable, the relations of the research model are tested using logistic regression. Findings The likelihood of a divestiture increases when firms have already had past experience of divestitures. Firm performance and firm size act as moderating variables, that is, the learning effects are weaker in firms with better past performance and also in larger firms. Research limitations/implications The study contributes to the literature on organisational learning and divestiture. In particular, the knowledge obtained from previous divestitures is positively related to subsequent ones. The results on firm size and performance as contingency factors make it possible to distinguish between the different learning mechanisms in proactive and reactive divestitures, as well as in larger and smaller firms. Accordingly, a two-level framework of experience and knowledge is proposed. Practical implications The results are of interest for practitioners who need a better understanding of the antecedents of their strategic actions in terms of past experience and knowledge. The study also offers insights into the knowledge management practices that fit into the proposed two-level framework of knowledge accumulation. Originality/value The originality of the study consists in the strong evidence of learning effects in divestitures that it finds. This study augments a promising line of research on the effect of experience in rare strategic decisions, enriching our understanding of the learning mechanisms associated with complex experiences.

Pay inequality and corporate divestitures

Abstract: Research Summary: This paper analyzes how pay inequality influences divestiture decisions. Using detailed data on division manager compensation and divestiture activity, this study documents that firms are more likely to divest divisions when pay inequality among division managers is higher. To address potential bias in the measurement of pay inequality, we construct a “synthetic” measure that varies with regional and industry pay shocks that differentially affect division managers within firms. Post hoc analyses reveal that social comparison appears to explain, at least partially, the relationship between unequal pay and divestiture. These findings support the notion that pay inequality can be an important predictor of firm boundaries. More generally, they suggest that unequal pay may have significant strategic consequences as firms increasingly adopt performance‐based compensation to motivate employees. Managerial Summary: This paper analyzes the link between the degree of inequality in division manager compensation and the likelihood that companies divest businesses. We find that companies are more likely to divest when the pay of their division managers is more widely dispersed. Supplementary analyses show that this relationship is stronger when division managers are more likely to compare their pay to that of their peers, for example, within companies whose divisions operate in more closely related industries or in more proximate geographic regions. These findings show that pay inequality can predict when companies choose to exit businesses. As such, it is relevant for understanding how corporate strategy is influenced by performance‐based compensation policies, particularly as these policies become the norm in companies around the world.

Real options models of the firm, capacity overhang, and the cross-section of stock returns

Abstract: We use a stochastic frontier model to obtain a stock-level estimate of the difference between a firm's installed production capacity and its optimal capacity. We show that this "capacity overhang" estimate relates significantly negatively to the cross-section of stock returns, even when controlling for popular pricing factors. The negative relation persists among small and large stocks, stocks with more or less reversible investments, and in good and bad economic states. Capacity overhang helps explain momentum and profitability anomalies, but not value and investment anomalies. Our evidence supports real options models of the firm featuring valuable divestment options.

Capacity expansion under regulatory uncertainty: A real options-based study in international container shipping

Abstract: We present a real options model for capacity expansion that introduces uncertainty about potential future regulation (regulatory uncertainty) and key characteristics of capacity decisions: investment with time to build, divestment, the option to charter, and operating flexibility. Regulatory uncertainty is modelled as a possible jump in operating, investment, and charter costs during the simulation horizon. We find that regulatory uncertainty with grandfathering (the extant fleet is exempt from compliance) promotes high up-front investment leading to excess capacity and increased emissions. However, regulatory uncertainty without grandfathering reduces investment and emissions and the use of more flexible capacity options, such as chartering.

Climate justice in the fossil fuel divestment movement: critical reflections on youth environmental organizing in Canada

Abstract: The fossil fuel divestment movement is a directed-network campaign1 that strategically uses economic and ethical arguments to challenge the social license of the fossil fuel industry. Fossil fuel divestment campaigns have become an induction point for the youth climate movement in North America (Grady-Benson & Sarathy, 2015; Rowe et. al., 2016). The analytical and operational approaches to social change employed by the fossil fuel divestment movement are having a ripple effect on the political orientation of a new generation of activists and environmental leaders. This thesis explores concepts and practices of climate justice in the fossil fuel divestment movement on Canadian university campuses, as a flashpoint in the shifting terrain of environmentalism. The research uses qualitative methods to analyze three case study campaigns, as well as supplemental interviews from additional campaign members and national coordinating organizations like 350.org and the Canadian Youth Climate Coalition. This project contributes to a growing body of literature concerned with applied political theory (Rowe et. al., 2016; Schifeling & Hoffman, 2017) and the social impacts of fossil fuel divestment (Bratman et al, 2016; Grady-Benson & Sarathy, 2015; Mangat et al., 2018), providing new insight into the potential of divestment organizing to disrupt dominant narratives of mainstream environmentalism. Fossil fuel divestment organizers are articulating climate justice analysis that calls for transformative system change, including critiques of neoliberal capitalism that are predominantly grounded in climate justice approaches.

Divestment as climate justice : Weighing the power of the fossil fuel divestment movement

Abstract: In spring 2010, on the campus of Swarthmore College, the student group Swarthmore Mountain Justice formed one of the first fossil fuel divestment campaigns. By 2013, the fossil fuel divestment movement had become the fastest growing divestment movement in history. This chapter offers a sympathetic yet critical appraisal of the fossil fuel divestment movement, which demonstrates its power and potential, while also highlighting its limitations. The carbon bubble often served a dual role. As an underlying moral reason for why investment in the fossil fuel industry's business model is immoral, as its successful fulfilment would entail climate chaos. Second, the carbon bubble served as a financial reason for not investing, for if the global community is successful in acting on climate, the fossil fuel business model would fail. As a social science study by Schifeling and Hoffman found, within the United States the divestment movement was successful in shifting public discourse towards discussing solutions to climate change.

Positive deviance and behavior change: A research methods approach for understanding fossil fuel divestment

Abstract: This article presents research designed to deepen understanding of institutional fossil fuel divestment, as one approach to addressing climate change. Since 2011, a growing global social movement has emerged focused on divestment of fossil fuel company holdings and reinvestment of those resources in clean energy. The study used a qualitative research design, employing a positive deviance approach and the Transtheoretical Model of Behavior Change (TTM), a well-established clinical psychology framework, to explore U.S.-based foundation leaders' readiness to pursue divestment. Investors have conventionally relied on fossil fuel holdings as investment portfolio mainstays. Therefore, leaders' divestment behavior constituted positive deviance: intentionally engaging in non-normative behavior intended to contribute to successful outcomes. The study examined leaders' motivations and actions in pursuing divestment, while simultaneously exercising their fiduciary (legal) duty to steward responsibly institutional assets. Research questions focused on the divestment behavior change process. Data collection and analysis were derived from two datasets: 34 foundation divestment commitment statements and semi-structured interviews with 18 foundation leaders. Findings included that leaders engaging in divestment may experience higher levels of satisfaction, pride, happiness, and engagement with organizational roles. Results yielded insights into organizational leadership, climate action, and utility of positive deviance and the TTM as research methods.

Impact of information spread and investment behavior on the diffusion of internet investment products

Abstract: Social networks play an important role in financial markets because the information diffusion in social networks influences the participation of investors. Prior studies have investigated the impact of investor social networks, but few have explored the impact of investment behavior based on information spread in social networks. In this paper, we propose a model for studying the influence that information dissemination and investment behavior in social networks have on the adoption of internet investment products. Information spread process, temporary investment, regular investment and divestment are considered. The results show that the positive influence of regular investment and the negative impact of divestment are not sensitive to the time scale. In addition, the positive impact of regular investment rate is obvious only when the temporary investment rate is not too small, and vice versa. Furthermore, the negative influence of divestment and the information rejection can hardly be offset by increasing the regular investment rate.

Corporate divestiture and performance: an institutional view

Abstract: In this study, we investigate how the institutional environment affects shareholders’ reaction to a firm’s announcement of divestitures. Traditionally, divestiture research has adhered to a financial economics perspective, in which shareholders anticipate certain economic outcomes from corporate divestitures and react accordingly. However, this research has not delivered a distinct understanding of the performance effects of corporate divestitures. To structure and integrate previous work, we apply a neo-institutional perspective of the stock market. We argue that at certain times, the institutional support for corporate diversification is relatively low. During these periods, there is a high rate of divestitures. The high divestiture activity legitimizes this corporate action and leads to a positive reaction of the stock market to new divestiture announcements. This means that individual evaluations of the possible performance outcomes of divestments are not the only factor determining the stock market reaction to a corporate divestiture announcement. Rather, investors might consider the perceived institutionalization of this corporate action when making their purchasing decisions. Using a meta-analytical technique, we find support for our prediction that different performance effects of divestitures, as revealed by previous studies, can be attributed to different conditions of the macro-economic environment. We discuss the implications of this result for research and management practice.

Tough Love: A Diasporic Critique of the Palestinian Boycott, Divestment, and Sanctions Movement:

Abstract: The authors use a diasporic critique of Palestinian Boycott, Divestment, and Sanctions (BDS) movements to argue that some of these movements undermine chances for two-state solutions. The authors,...

Market exit through divestment: the effect of accounting bias on competition

Abstract: We analyze the effect of accounting bias on the competition and market structure of an industry. In our model, firms interim accounting reports on investment projects may contain bias introduced by the mandatory accounting system. We find that this bias strictly decreases firm's profits when investors do not have an abandonment option, but different results emerge when we allow the investors to divest in the interim. Specifically, a conservative accounting regime may increase the likelihood of projects being discontinued, inducing some firms to exit from the product market and leaving rivals to capture their market share. A conservative regime can thus soften market competition and result in ex ante higher investment payoff, higher consumer surplus, and higher total social welfare. Since industries often have common reporting standards, we also identify the degrees of industry-wide accounting bias that maximize the expected investor payoffs. Finally, we allow for investors to coordinate their divestment decisions when both firms report unfavorable costs and show an improvement to both firms profits and consumer surplus.

Foreign divestment in the integration development path of Greece

Abstract: Research on investment development path (IDP) primarily focuses on conventional FDI. Instead, our study extends the IDP to explore foreign divestment within the European integration process approaching foreign divestment risk as the outcome of an interaction between regional integration and economic development. This is the main contribution of the study. In particular, the paper explores divestment risk when the emerging economy of Greece enters the single market which is considered as a crucial turning point for its development path. The analysis focuses on the divestment outcome of 162 MNE subsidiaries established during the protectionism era and finds considerable manufacturing divestment during the transition from protectionism to regional integration in spite of the positive development of the Greek economy. However, the divestment effects of the individual explanatory variables used in the study are asymmetrical. The findings provide useful lessons for economic policy in emerging economies entering a developed integrated area, having interesting integration and FDI policy implications and venues for future research.

When Investors Care About Causes: Learning from Political Divestiture During Apartheid and the Sudan Crises for the Transition to Renewable Energy via Green Bonds

Abstract: In the wake of historical and political events, stakeholder pressure can trigger shareholders to divest from politically incorrect markets with the goal of accomplishing socio-political change. As a comparative study, this paper reviews political divestiture to provide a theoretical framework for divestiture in the age of global warming. Six studies of political divestiture from Apartheid South Africa were meta-synthesized to find a pattern of stakeholder pressure, political divestiture and corporate endeavors. Some studies suggest a positive, others a negative impact and even no relation of political divestiture and corporate value was reported. The instringent findings are attributed to methodological difficulties. The findings aid in drawing inferences on the transition into renewable energies and implementation of climate stability bonds.

Divestment of Strategic Resources in a Hypercompetitive, Capital Intensive, Knowledge Based Industry

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Private Equity Firms’ Exit Decision in the Nordic Market: An Empirical Study on Factors that Influence Private Equity Firms’ Divestment Strategy

Abstract: This paper investigates which factors determine how a private equity-backed fund exits their investment in a portfolio company located in the Nordic markets. A total of 397 Nordic portfolio company private equity exits occurring between January 2005 and December 2017 have been analyzed in this paper. The three main exit strategies in this study are Secondary Buyouts, Trade Sales, and IPOs. The majority of research conducted on private equity firms’ divestment strategy focuses on American and European Union portfolio company investments. The aim of this paper is to fulfill the gap within academia by focusing on the Nordic region and specific factors influencing divestment routes unique to this PE environment. Our findings support the idea that specific PE firm and fund characteristics, portfolio company characteristics, and macroeconomic factors all play a role in determining if a PE firm exits a Nordic investment via SBO, trade sale, or IPO. The most significant factors influencing the decision are the size of the PE fund, the age, total sales, and profitability of the portfolio company (measured as EBIT margin), and the current state of the local stock market and credit market. (Less)

What investors want : perceptions and experiences of multinational corporations in developing countries

Abstract: This paper discusses the results of a survey of multinational corporations with affiliates in developing countries. The paper explores corporate perspectives and decision making across the stages of the investment cycle: attraction, entry and establishment, operations and expansion, linkages with the local economy, and, in some cases, divestment and exit. Through interviews with 754 executives, the survey finds that political stability and a business-friendly regulatory environment are the top two factors influencing multinational corporations' investment decisions in developing countries. Investors seek predictable, transparent, and efficient conduct of public agencies. The survey results also show that investors are heterogeneous, and their perceptions vary with motivation and size. Multinational corporations that are involved in efficiency-seeking investment are more selective than investors motivated by other considerations, and that relatively smaller multinational corporations are more sensitive to host country characteristics and investment climate factors than large firms.