Essays in environmental, social, and governance performances in finance
Creators: name: Arthur, Joseph
Publisher: name: University of Iowa
Year: 2023
Subjects: Bank Lending
Cost of environmental damages
Environmental Social and Governance
Institutional Ownership
Social unrest
public abstract

description: This thesis explores three important topics in corporate finance: environmental, social, and governance (ESG) performance, institutional ownership, and bank behavior. In the first chapter, we examine the impact of ESG performance of financial companies on investor behavior via their holdings and whether financial companies respond to their own ESG performances. In the second chapter, I investigate the role of social performance on bank behavior in the face of social unrest. In the third chapter, I study the value relevance of the cost of environmental damage on firms and investors. In Chapter 1 titled “The Informational Content of Financial Companies’ ESG Performance: Evidence from Ownership and Investments” , we provide evidence that ESG performances of financial companies are informative and that these performances have real and significant economic impact. First, investor holdings increase with ESG performance of financial companies. The investor decision is not driven by familiarity bias. Instead, the ESG performance of financial companies contains value-relevant information that is unlocked by institutional investors. Lastly, these performances impact investment decisions of financial companies.
description: In Chapter 2 captioned “Bank Socialness: it matters when it counts”, I explore the role of social performance on bank behavior during social uncertainty shocks. In the last decade, social unrest has increased significantly on the global scale as well as in the USA. The literature has documented a negative economic impact of social unrest: in respect of lower GDP and stock valuations. In this paper, I extend the literature by focusing on the impact of social unrest on credit supply in the US. I document a negative relationship between social unrest and growth in business loans and especially, commercial &amp; industrial loans (even for small businesses). More importantly, the socialness of banks appears to moderate the negative impact as banks with high social scores grow their commercial loan supply more than their peers with low social scores. I further find that some borrower characteristics and lending conditions play similar mitigating roles.
description: In Chapter 3 titled “Value Relevance of Cost of Environmental damage”, I assess whether environmental (carbon) damage costs affect firm value and firm ownership. Using proprietary environmental damage costs data on US firms from Trucost, I find that firm value is negatively associated with environmental (carbon) damage costs with additional tests suggesting the association is causal. Institutional investors increase their relative holdings following shocks that reveal financial benefits to internalization or reduction of these costs. Overall, my results confirm the macroeconomic view that environmental damage costs should be reflected in investor and market analyses of firms’ operations.