This study investigates how performance gaps - the difference between actual and aspirational firm performance - influence firms' green innovation strategy (GIS) upgrading using panel data on Chinese listed firms from 2013 to 2023. The analysis includes 13,786 firm-year observations in the performance surplus group and 9161 in the performance deficit group. The results reveal an asymmetric behavioral pattern: performance surpluses inhibit GIS upgrading, while performance deficits promote it. Government subsidies reinforce these asymmetric effects, intensifying the negative relationship between performance surpluses and GIS upgrading while strengthening the positive relationship between performance deficits and GIS upgrading. Analyst attention mitigates the negative effect of performance surpluses and strengthens the positive effect of performance deficits on GIS upgrading. Heterogeneity analyses show that these relationships vary by ownership structure, financing constraints, and market competition. Overall, these findings highlight how performance feedback shapes sustainability-oriented strategic change under both prosperity and adversity.
This paper extends the discussion on the predictive role of bond market information for the stock market to a novel context by proposing a new predictor of stock market bubbles for the United States (US), namely the implied skewness of the Treasury yield. Using daily data from January 1988 to April 2025, we first implement the Multi-Scale Log-Period Power Law Confidence Indicator (MS-LPPLS-CI) framework to detect positive and negative bubbles at the short-, medium- and long-term. Next, employing a nonparametric causality-in-quantiles framework, we show that bond market signals inferred from the implied skewness of the Treasury yield carry significant predictive content for US and international stock market bubbles. While the predictive effect of Treasury yield skewness is found to be asymmetric across the short-, medium-, and long-term of the positive and negative bubble indicators, the strongest influence is observed at the lowest conditional quantiles of the bubble indicators, suggesting that bond market information captured by forward-looking skewness of interest rate implied by Treasury options carries significant in-sample predictive content for bubble formation and crash risk in the stock market. These results hold when considering the remaining G7 and BRICS countries. They provide support for the determinant role of interest rate signals by the Fed over risky asset dynamics in global stock markets, which can be used by investors and policy authorities to have timely insights on imminent boom-bust cycles.
While there is growing consensus that the net-zero transition creates financial risks, a key oversight has emerged: existing research predominantly focuses on direct carbon pricing effects while overlooking the complex transmission of stranded asset risks through the financial system. This oversight is particularly concerning as financial stability could be threatened by both aggressive climate policies and delayed action. We address this theoretical gap by developing a novel six-sector DSGE model that captures two critical mechanisms: (i) the endogenous formation of stranded assets through the interaction between carbon policy expectations and asset valuations, and (ii) the amplification of transition risks through financial intermediation channels. The model uniquely incorporates both quantity-based and intensity-based carbon controls, alongside green monetary policy tools, allowing us to examine policy coordination effects that have been largely neglected in previous literature. Our findings challenge the conventional wisdom that stricter carbon policies necessarily lead to greater financial instability. We demonstrate that intensity-based controls can stimulate output through scale effects, partially offsetting the contractionary impact of quantity controls. Moreover, we show that the effectiveness of green monetary policies that embed prudent mechanisms of green incentives and brown penalties critically depends on their coordination with carbon policies. These results suggest that policymakers should move beyond the simple “policy stringency-financial risk” trade-off and focus on designing coordinated policy packages that can facilitate an orderly transition while preserving financial stability.
This study examines whether green mutual funds in China engage in greenwashing by investing in firms with high Environmental, Social, and Governance (ESG) scores but substantial carbon emissions. We find that Principles for Responsible Investment (PRI) signatories attract more fund inflows and show higher portfolio ESG scores, but their carbon emissions remain unchanged. Both active and index-based green funds exhibit high ESG scores but high carbon emissions. Further analysis indicates that high‑carbon firms exploit voluntary carbon disclosure to inflate ESG ratings, while funds' mechanical reliance on these scores transmits corporate greenwashing to the fund level, particularly among funds with limited capacity and resources. Moreover, greater public climate awareness and improved carbon data availability promote genuine decarbonization. Overall, our findings reveal a transmission mechanism from corporate greenwashing to fund greenwashing, implying that passive ESG investing based on commercial ESG scores may inadvertently subsidize carbon emissions.
This study investigates the impact of corporate environmental, social, and governance (ESG) ratings on firm-level biodiversity risk exposure using a sample of 26,363 Chinese A-share listed firms from 2009 to 2023. Results show that improvements in ESG ratings significantly reduce firms' biodiversity risk exposure. The finding remains significant after a series of robustness checks and endogeneity treatments. Mechanism analysis reveals that improvements in ESG ratings primarily mitigate biodiversity risk exposure by addressing agency problems, enhancing external attention, and alleviating financial constraints. Heterogeneity analysis shows that the effect of ESG ratings in reducing biodiversity risk exposure is greater among firms with stronger corporate governance and higher market attention, as well as among state-owned enterprises or politically connected firms. Our findings contribute to the growing literature on sustainable finance by demonstrating that ESG ratings are an effective risk management tool for mitigating biodiversity risks.
