Bing Violet Xu - Research

Do Director Skill Sets Affect Firm ESG Responsibilities? [draft on request]

Abstract: This study investigates the relationship between the environmental, social, and governance (ESG)-related skill sets of firms’ board directors and corporate ESG performance. Looking at S&P 1500 firms from 2009 to 2022 which includes the years of heightened ESG awareness, my analysis does not support the notion that directors' ESG skills enhance firms' ESG performance, and I uncover a prevalent trend of "competency washing" among firms. Specifically, when examining ESG dimensions including environmental, human capital, and others, I find no evidence that directors' skill sets contribute to improved corporate ESG performance; in fact, such skill sets may even lead to worse firm ESG outcomes. However, I do reveal evidence indicating that director skill sets in ESG matters increase the likelihood of incorporating ESG objectives into CEO contracts. Additionally, when segmenting my sample into S&P 500 firms and those outside the index, I find that firm size matters — directors' ESG skill sets are more influential in affecting CEO contracts within S&P 500 firms.

The CEO Compensation Sustainability Goals’ Disconnect: Evidence from the Oil & Gas Industry, with Sudheer Chava, Lubomir P. Litov, and Runzu Wang [draft on request]

Abstract: Using novel hand-collected data of managerial annual incentive plans (AIP) goals in 1994-2020, we characterize the presence of sustainability compensation targets. We show that sustainability targets are often quantified with corresponding overall weight in the incentive plan instead of rarely observed sustainability modifiers. Examining Fortune 250 firms, we find that such sustainability goals are uncommon and available in about 8% of the sample as recent as 2020. Moreover, most such firms are in the oil & gas industry. Turning exclusively to the latter, we show that sustainability goals are only effective in reducing CO₂ emissions, environmental penalties, and toxicity emissions for past polluters. No such effect is present in green innovation. Our results suggest that sustainability compensation goals are valuable if implemented in firms with high past pollution levels, exclusively, consistent with optimal contracting. Since sustainability goals are associated with slower sales growth and lower profitability, therefore boards need judiciously apply such contracts. Using firm inclusion in the Board Accountability Project and state adoption of director duties statutes as well as industry sustainability compensation practices as instruments for adopting sustainability targets, we confirm that our results are causal.

Energy Finance, with William L. Megginson and Heber Farnsworth. April 2022, Oxford Research Encyclopedia of Finance and Economics.

Abstract: Defined as a single industrial sector, the global production, distribution, and consumption of energy is the world’s largest in terms of annual capital investment (US$1.83 trillion in 2019, the last prepandemic year for which full data are available) and the second largest nonfinancial industry in terms of sales revenue (US$4.51 trillion). Production and consumption of more than 100 million barrels of oil occurs each day—with 70% being traded across borders. Each of the world’s 7.5 billion citizens consumes an average of 3,181 kilowatt-hours per year, although per capita energy consumption varies enormously and is much higher in rich than in poor countries.

Properly analyzing the financial economics of the global energy industry requires focusing on both the physical aspects of production and distribution—how, where, and with what type of fuel energy is produced and consumed—and the capital investment required to support each energy segment. The global energy “industry” can be broadly categorized into two main segments: (a) provision of fuels for transportation and production and (b) distribution of electricity for residential and industrial consumption. The fuels sector encompasses the production; processing; and distribution of crude oil and its refined products, mostly gasoline, kerosene (which becomes jet fuel), diesel, gas oil, and residual fuel oil. The electric power sector includes four related businesses: generation, transmission, distribution, and supply.

Two imperatives drive the ongoing transformation of the global energy industry. These are (a) meeting rising demand due to population growth and rising wealth and (b) addressing climate change through greener energy policies and massive capital investments by corporations and governments. The pathway to decarbonizing electricity production and distribution by 2050 is fairly straightforward technologically; however, doing so will require both scientific innovations (particularly regarding scalable battery storage) and sustained multitrillion-dollar annual investments for the next three decades. Decarbonizing transportation is a far more difficult and expensive proposition, which will require fundamental breakthroughs in multiple technologies, coupled with unusually farsighted policy action. Extant academic research already provides useful guidance for policymakers in many areas, but far more is required to help shape the future policy agenda.

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