Essays in Corporate Governance and Sustainable Finance

Date
2021-04-19
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Abstract
This thesis consists of two essays in corporate governance and sustainable finance. In the first essay, we exploit an overlooked aspect of constituency statutes – an emphasis on considering the long-term interests of the firm – and study whether the staggered enactment of the statutes in different U.S. states actually encourages firms to manage for the long-term. We find that for firms in the technology and pharmaceutical industries, where a longer-term orientation matters the most, executive compensation contracts have longer vesting periods, shareholder composition changes towards greater long-term institutional ownership, firms conduct less earnings management, and spend more on R&D after the enactment of constituency statutes. We further show that lengthening the firm horizon increases firm value, but at the expense of decreasing cash flows. Overall, our study shows that lengthening the firm horizon benefits firms in the technology and pharmaceutical industries, but not other firms. In the second essay, we study the resiliency of environmental and social (ES) stocks during the COVID-19 market crash. The COVID-19 pandemic and the subsequent lockdown brought about an exogenous and unparalleled stock market crash. The crisis thus provides a unique opportunity to test theories of ES policies. This paper shows that stocks with higher ES ratings have significantly higher returns, lower return volatility, and higher operating profit margins during the first quarter of 2020. ES firms with higher advertising expenditures experience higher stock returns, and stocks held by more ES-oriented investors experience less return volatility during the crash. This paper highlights the importance of customer and investor loyalty to the resiliency of ES stocks. Collectively, this thesis contributes to the literature by showing that firms’ long-term orientation, including investments in environmental and social initiatives, creates value for them.
Description
Keywords
Corporate Governance, Sustainable Finance
Citation
Yang,, S. (2021). Essays in Corporate Governance and Sustainable Finance (Doctoral thesis, University of Calgary, Calgary, Canada). Retrieved from https://prism.ucalgary.ca.