We estimate the supply-side effects of climate change on firm sales by exploiting variation in local average temperature across suppliers of the same client. A 1°C increase in temperature leads to a 2.5% decline in annual sales. This effect is nonlinear, with stronger effects among suppliers in regions with the largest temperature increases and in cooler regions. Manufacturing and heat-sensitive industries are more affected, consistent with a reduction in labor productivity and labor supply when local temperatures rise. Nondiversified and financially constrained firms are also more affected, supporting the importance of operational and financial flexibility in adapting to climate change.
Using regression discontinuity and difference-in-differences designs to compare prices of California homes across a new wildfire risk zone boundary, I identify null effects in the immediate vicinity of the new risk zone boundary. In contrast, prices of homes newly assigned to a riskier zone drop by 5.7% further away from the new risk zone boundary. These findings suggest that households do not respond to the risk salience triggered by the new risk zone assignment. Instead, they update their risk beliefs in response to rezoning in a way that is consistent with the actual wildfire risk.
Abstract Over the past decade, hedge funds have increasingly embraced green investing. We develop a novel return-based measure of fund greenness and find that greener funds earn higher average returns, consistent with capturing a positive green premium, and are associated with lower risks, especially during adverse periods. We further show that performance gains are greatest among directional funds, whereas risk reduction is most pronounced among nondirectional funds. We also provide evidence that managers of these funds exhibit superior green investment skills through green stock selection and green factor timing. Finally, investors reward greener hedge funds only when they demonstrate strong performance.
Abstract Does distrust in politically affiliated media induce a bias in investor beliefs? We study the acquisition of Dow Jones & Co. by News Corporation in 2007 as a shock to the political affiliation of Dow Jones outlets. Following the acquisition, the prices of Republican- (Democrat-) aligned stocks become less sensitive to favorable (unfavorable) Dow Jones Newswires (DJNW) sentiment, consistent with the market attaching less credibility to a politically affiliated source. There is, however, no evidence of change in DJNW sentiment, coverage, or language about Republican/Democrat stocks, suggesting a loss of stock price informativeness. Consistent with this view, a portfolio exploiting the attenuated reaction to DJNW news earns abnormal returns following 2007.
We examine the effect of private equity buyouts on the environmental performance of U.S. fossil fuel power plants. Output-scaled CO 2 emissions are, on average, 4.2% lower after buyouts, predominantly because of fuel-saving improvements in production efficiency. Emission intensities decline more significantly following buyouts backed by pro-ESG private equity because of not only greater efficiency gains but also enhanced emission control. Our results suggest that while private equity firms are effective at implementing environmentally beneficial operational changes that also increase profitability, they do not have strong incentives to undertake environmentally beneficial changes that are privately costly, except for those with pro-ESG preferences.
