ABSTRACT I show that the recent returns to environmental, social, and governance (ESG) investing are strongly driven by price impact from flows toward ESG portfolios. Using data on trades, I estimate the market's ability to accommodate ESG flows, which is given by the elasticity of substitution between ESG and other stocks. I show that every dollar flowing toward a representative ESG portfolio increases the market value of ESG stocks by $0.8. The growing institutional flows into the ESG portfolio are the main driver of ESG returns and have caused an annual flow‐driven return of 1.9%. In the absence of flows, ESG stocks would not have outperformed the market from 2012 to 2023.
ABSTRACT I show how firms optimize the allocation of charitable funds around investments that require external stakeholder support, such as mergers and acquisitions. Acquirers increase donations to target‐related charities before making a takeover offer, but scale funds back after withdrawing from a deal. Firms redistribute funds from nontakeover‐related areas to target insider–affiliated charities, employee communities, and counties with a regulatory presence. Targeted donations that encourage blockholder reciprocity and employee commitment are associated with better deal performance through decreased merger premiums and lower integration costs. Overall, the results highlight firms’ use of philanthropy to manage stakeholder relations in takeover decisions.
ABSTRACT How does demand uncertainty affect firms' investment decisions? We examine this question in the context of electricity‐producing firms' planned investments in new power plants. We measure uncertainty about future electricity demand using plausibly exogenous variation in temperature projections across scientific climate models. The results show that uncertainty increases investment in power plants with flexible production technologies, while reducing investment in less flexible technologies. Overall, the net effect of uncertainty on investment is positive when firms have access to flexible investment opportunities. These findings are consistent with models in which production flexibility shapes the investment response to demand uncertainty.
ABSTRACT This paper estimates the cross‐sectional distribution of Epstein‐Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find modestly heterogeneous risk aversion (standard deviation 0.97, median 7.50) and a meaningfully heterogeneous and right‐skewed time preference rate (TPR; standard deviation 7.31%, median 4.08%) and elasticity of intertemporal substitution (EIS; standard deviation 3.17, median 0.70). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households that enter our sample with low wealth.
We present results from a field experiment that introduced digital payroll accounts to unbanked factory workers to examine how inexperienced consumers learn to use a new financial technology. We find that exposure to payroll accounts leads to increased account use, accelerated learning, and avoidance of common consumer protection risks. Those receiving electronic wage payments gradually build trust in the technology, learn to use accounts without assistance, and avoid illicit fees. Using experimental variation in assignment to bank versus mobile money accounts, we show that these impacts are concentrated in mobile money accounts, the newer, more complex, and less trusted financial technology.
