• Political Conflict and Corporate Policies: Evidence from the Basque Country

with François Derrien, Stavriana Hadjigavriel, and José Martin-Flores

This paper examines how political conflict affects corporate policies focusing on the Spanish Basque Country. We exploit the announcement by the Basque nationalist terrorist group ETA of the definitive cessation of its armed and extortion activities as an exogenous shock to the exposure of firms in the Basque Country and Navarre to extortion risk. We find that, following the announcement, firms in these regions significantly increase their cash holdings and exhibit higher cash flow sensitivity of cash. They also reduce investment in fixed assets and rely less on short-term debt, consistent with a shift away from strategic liquidity minimization under extortion risk.  Finally, firm performance improves. Overall, the results suggest that political conflict distorts cash management, financing choices, and investment decisions.

• Green Monetary Policy and Climate Transition Risk

with Alexandre Garel and José Martin-Flores

This paper studies the impact of the ECB's July 2022 announcement of concrete measures to decarbonize its corporate bond holdings and adjust collateral eligibility criteria on the European corporate bond market. We document a significant decline in the value of eligible bonds issued by carbon-intensive firms following the announcement. Consistent with the ECB's stated approach to measuring climate performance, these effects are particularly pronounced for carbon-intensive firms lacking emission reduction commitments or with poorer climate disclosure. Placebo tests using non-eligible bonds indicate that these results are specific to firms directly affected by the announcement of the ECB's green monetary policy. We further show that European funds reduce their holdings of bonds issued by carbon-intensive firms in the months following the announcement. Finally, we find that coupon rates at issuance are higher for carbon-intensive firms after the announcement and that these firms reduce their reliance on bond financing. Collectively, our evidence indicates that green monetary policy represents a source of climate transition risk, directly affecting investor behavior and firms' financing conditions. 

• Climate Disclosure and Director Elections,

with Alexandre Garel and Roni Michaely

This study investigates the impact of climate-related disclosure on investor support for directors in board elections. Firms not disclosing carbon emissions receive significantly more votes against their directors, a trend robust to various controls, including governance proxies, ESG incidents, and proxy advisors’ recommendations. Firms initiating climate disclosure face fewer negative votes. Sustainable funds and universal investors are key drivers of this trend. Moreover, investors supporting shareholder-sponsored climate proposals are more likely to vote against directors in firms lacking carbon disclosure. In the years following a significant fraction of votes against directors, companies are more likely to respond to the CDP questionnaire. Our results suggest that investors vote against directors as a mean to change boards’ approach towards climate change issues and climate disclosure in particular.

• Climate Risk Engagements

with François Derrien, Alexandre Garel, and Feng Zhou

We study climate-risk related engagements by one of the world’s largest investors. Climate risk engagements represent a growing fraction of ESG engagements and are more frequent in high carbon emissions industries. We find that firms with greater carbon footprint and greater exposure to climate transition risk are more likely to be targeted. Following a climate risk engagement, targeted firms are more likely to commit to adopt a science-based climate target and to disclose climate-related information. Targeted firms also experience a reduction in their carbon emissions. However this reduction is limited to scope 1 and 2 emissions and its magnitude is inconsistent with net-zero targets. We also find that climate risk engagements are associated with greater voting support for management. Overall, our results suggest that shareholder engagement on climate issues can be an important tool in the fight against climate change. 

• Mandatory Carbon Disclosure: Evidence from France

with Thomas Bourveau and Alexandre Garel

We examine firms’ response to a carbon disclosure mandate imposed on French firms with more than 500 employees by the Grenelle II law. We find that only half of the firms subject to the mandate comply and file at least one carbon report between 2014 and 2021. Conditional on filing a report, virtually all the firms report their scope 1 and scope 2 emissions. However, only a fraction of the firms report their scope 3 emissions. Similarly, we document considerable heterogeneity in firms’ decisions to provide an action plan to reach targeted reductions in future carbon emissions. Importantly, the propensity to file a carbon report and to include an action plan is lower for firms in more carbon-intensive industries. Finally, we find that expected carbon emission reduction is associated with the actual reduction in emissions, especially for firms that provide clear action plans with quantitative metrics.