Does Money Talk? Divestitures and Corporate Environmental and Social Policies. (9th May 2022)

• Record Type: Journal Article
• Authors: Gantchev, Nickolay; Giannetti, Mariassunta; Li, Rachel
• Is Part Of: Review of finance. Volume 26:Number 6(2022)
• Page Start: 1469
• Page End: 1508
• Publication Date: 2022-05-09
• Subjects: Corporate social responsibility -- Real effects of financial markets -- Institutional investors -- Sustainability -- Corporate governance; G15 -- G23 -- G30 -- M14; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfac029
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: Can shareholders' divestitures and threats of exit trigger improvements in firms' environmental and social (E&S) policies? We show that E&S incidents are followed by some, but relatively small, divestitures. Nevertheless, following E&S incidents, firms with a one-standard-deviation higher E&S-conscious institutional ownership decrease their greenhouse gas emissions by 36.5% and improve their E&S scores by 7.2% more than other firms if their managers receive equity compensation. We do not observe any improvements associated with sales in E&S-conscious countries. Our results suggest that the threats of future exits and divestitures can improve E&S policies if shareholders are E&S-conscious and managers' compensation is linked to the stock price.