Do carbon emissions affect the cost of capital? Primary versus secondary corporate bond markets
with Daniel Kim
We empirically study whether carbon emissions affect firms' cost of capital raised on bond markets. We show that firms with higher carbon emissions tend to face higher spread on the primary market. However, this carbon premium represents less than 15% of the one prevailing on the secondary market. A simple model attributes this gap to uncertainty about future climate concerns of investors and limited competition among primary market dealers. We find evidence for these two channels. Our findings imply that market imperfections reduce the effectiveness of the cost of capital channel in inducing firms to reduce their carbon emissions.
Climate Patents and Financial Markets
with Ulrich Hege and Yifei Zhang
We study the financial markets reaction to climate patents announcements. Exploiting quasi-random variations in patent examiner leniency to allow for causal interpretations, we find that firms with fortuitous climate patent grants benefit from positive medium-run abnormal stock returns and a lower cost of capital compared to similarly innovative but unlucky firms. These effects are amplified during periods of high attention to climate change, for firms with high climate exposure, and for first-time grants of climate patents. Random grants of climate patents also lead to an inflow of responsible institutional investors and to better environmental ratings. They do not produce improvements in the innovator's operating performance or carbon emissions, but the underlying climate technologies do, suggesting that financial markets react to the signal value of climate patent grants.
(Why) Do(n’t) universal investors vote to curb climate change?
with Marie Brière, Martin Schmalz and Loredana Ureche-Rangaud
We study how very diversified and patient institutional investors, also known as universal investors, vote on shareholder resolutions aimed at miti- gating climate change externalities. In our sample, we identify five universal investors, including the Big Three, that we compare to 255 other US fund families over the period from 2013 to 2020. We find that, contrary to the common ownership logic, universal investors support these climate resolutions less than otherwise similar asset managers, and, for the Big Three, less than they support resolutions on general financial and governance issues. These results hold i) for other topics clearly related to externalities, ii) when climate resolutions are supported by ISS, iii) after 2016, iv) when controlling for political contributions of fund families’ CEOs, and v) for both climate reporting and climate action resolutions. We discuss potential explanations and implications of our results.
The Development of Corporate Governance in Toulouse 1372-1946
with David Le Bris and Will Goetzmann
This paper analyzes the development of corporate governance in the Toulouse share- holding companies. Various milling companies that began in the 11th century formally merged into two large-scale, widely held firms by 1372-1373. In the years that fol- lowed they experienced the economic challenges, joint-ownership, moral hazard and monitoring, we now recognize as inherent in the separation of ownership and control. Using new and existing archival research, we show how the Toulouse firms developed institutional solutions to address these economic challenges. These solutions included tradable shares, limited liability, shareholder meetings, governing boards, cash payout policies, accounting audits, and mechanisms for re-capitalization.