Essays on Business and Climate Change.

Abstract

The first essay of this dissertation examines how firms respond to pressures to voluntarily disclose environmental information in a rapidly changing regulatory environment. Information disclosure programs are often considered to be the third wave of environmental regulation, following command-and-control and market-based programs. Under certain circumstances, however, they may not function well. This paper finds that when there is a strong regulatory threat, firms tend to take advantage of voluntary disclosure programs. Specifically, they often engage in selective disclosure, i.e., reporting good news while concealing bad news, in order to manage their environmental reputations and obtain favorable regulatory outcomes. These findings suggest that voluntary environmental disclosure made by companies under strong regulatory pressure may not fully reveal their environmental performance. The second paper studies the circumstances under which a voluntary environmental disclosure program initiated by institutional investor activism affects shareholder value. This case is different from typical activism which interferes with management decisions with the intention of increasing shareholder value. Although disclosure is encouraged by institutional investors who have large stakes in the companies examined, their activism is passive in nature, encouraging and monitoring disclosure of environmental performance. The second essay finds that when the likelihood of climate change regulation increases, firms which respond to institutional investors’ call for disclosure experience positive abnormal stock returns, suggesting that those firms are viewed as better prepared for the exogenous regulatory shock. The third essay explores how economic deregulation affects incentives for green investment. The central idea behind economic deregulation is that increased competition provides firms with incentives for greater efficiency. From an efficiency perspective, deregulation should discourage investment in green technologies because they are typically more costly than comparable brown technologies. The third paper finds that upon deregulation large incumbent companies invested less in green technologies and this negative effect could persist past the initial period following deregulation. This finding is consistent with the view that deregulation promotes efficiency and stands in contrast to recent studies which argue that the intensity of competition is positively associated with environmental differentiation.