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  5. (Ir)responsible Corporate Governance
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(Ir)responsible Corporate Governance

Paper Session

Saturday, Jan. 8, 2022 10:00 AM - 12:00 PM (EST)

Hosted By: American Finance Association
  • Chair: Doron Levit, University of Washington

Environmental Externalities of Hedge Fund Activism

Pat Akey
,
University of Toronto
Ian Appel
,
Boston College

Abstract

We study the eect of hedge fund activism on corporate environmental behaviors. Using plant-chemical level data from the EPA, we nd that activism campaigns are as- sociated with a 17 percent drop in emissions for chemicals at plants of targeted rms. Campaigns are associated with changes across a wide range of chemicals, including those emitted into the air, water, and ground and those that are harmful to humans. Evidence suggests this change in environmental behavior stems from a drop in produc- tion rather than an increase in abatement activities. The net eect on environmental eciency is positive, with emissions falling by 8 percent per unit of output. Overall, our ndings highlight the idea that the benets of activism are not necessarily conned to shareholders, but may also extend to other stakeholders (e.g., the local community) aected by rms' emissions.

Stakeholder Value: A Convenient Excuse for Underperforming Managers?

Ryan Flugum
,
University of Northern Iowa
Matthew Souther
,
University of South Carolina

Abstract

Firms falling short of earnings expectations are more likely to cite stakeholder-focused objectives in their public communications around earnings announcements. This behavior suggests that managers push to be evaluated by subjective stakeholder-based performance criteria when falling short on objective shareholder-based measures. This relation between underperformance and stakeholder language becomes stronger after the 2019 Business Roundtable statement and appears unrelated to a firm’s actual ESG-related activity. Stakeholder language appears to influence the evaluation of CEOs; turnover-performance sensitivity is lower for managers citing stakeholder value. Collectively, our findings suggest that the push for stakeholder-focused objectives provides managers with a convenient excuse that reduces accountability for poor firm performance.

What Purpose Do Corporations Purport? Evidence from Letters to Shareholders

Raghuram Rajan
,
University of Chicago
Pietro Ramella
,
University of Chicago
Luigi Zingales
,
University of Chicago

Abstract

We use NLP techniques to identify and classify the corporate goals contained in the letters to shareholders that introduce the annual reports of the 150 largest companies in the United States, from 1955 to 2020. Before the1980s, most annual reports contained no goals. If they did, it was at most one. Since then, the number of goals have proliferated, with the average annual report containing four goals. We analyze how changes in institutional ownership and takeover pressure triggered the adoption of new goals and what impact this adoption had on corporate performance.

Discussant(s)
Nicole Boyson
,
Northeastern University
Mariassunta Giannetti
,
Stockholm School of Economics
Jonathan M. Karpoff
,
University of Washington
JEL Classifications
  • G1 - Asset Markets and Pricing