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Does Money Talk? Divestitures and Corporate Environmental and Social Policies
[The “Wall Street Walk” and Shareholder Activism: Exit as a Form of Voice]

Author

Listed:
  • Nickolay Gantchev
  • Mariassunta Giannetti
  • Rachel Li

Abstract

Can shareholders’ divestitures and threats of exit trigger improvements in firms’ environmental and social (E&S) policies? We show that E&S incidents are followed by some, but relatively small, divestitures. Nevertheless, following E&S incidents, firms with a one-standard-deviation higher E&S-conscious institutional ownership decrease their greenhouse gas emissions by 36.5% and improve their E&S scores by 7.2% more than other firms if their managers receive equity compensation. We do not observe any improvements associated with sales in E&S-conscious countries. Our results suggest that the threats of future exits and divestitures can improve E&S policies if shareholders are E&S-conscious and managers’ compensation is linked to the stock price.

Suggested Citation

  • Nickolay Gantchev & Mariassunta Giannetti & Rachel Li, 2022. "Does Money Talk? Divestitures and Corporate Environmental and Social Policies [The “Wall Street Walk” and Shareholder Activism: Exit as a Form of Voice]," Review of Finance, European Finance Association, vol. 26(6), pages 1469-1508.
    • Handle: RePEc:oup:revfin:v:26:y:2022:i:6:p:1469-1508.
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    File URL: http://hdl.handle.net/10.1093/rof/rfac029
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    References listed on IDEAS

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    1. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    2. Anat R. Admati & Paul Pfleiderer, 2009. "The "Wall Street Walk" and Shareholder Activism: Exit as a Form of Voice," The Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2445-2485, July.
    3. Berk, Jonathan B. & van Binsbergen, Jules H., 2021. "The Impact of Impact Investing," Research Papers 3981, Stanford University, Graduate School of Business.
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    Cited by:

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    2. Emre Kuvvet, 2024. "Reassessing climate disclosure demands: An examination of stakeholder perspectives beyond institutional investors," Economic Affairs, Wiley Blackwell, vol. 44(1), pages 95-117, February.
    3. DeLisle, R. Jared & Grant, Andrew & Mao, Ruiqi, 2024. "Does environmental and social performance affect pricing efficiency? Evidence from earnings conference call tones," Journal of Corporate Finance, Elsevier, vol. 86(C).
    4. Gregor Dorfleitner & Rongxin Zhang, 2024. "ESG News Sentiment and Stock Price Reactions: A Comprehensive Investigation via BERT," Schmalenbach Journal of Business Research, Springer, vol. 76(2), pages 197-244, June.
    5. Colak, Gonul & Korkeamäki, Timo P. & Meyer, Niclas Oskar, 2024. "ESG and CEO turnover around the world," Journal of Corporate Finance, Elsevier, vol. 84(C).
    6. Jonas Zink, 2024. "Which investors support the transition toward a low-carbon economy? Exit and Voice in mutual funds," Journal of Asset Management, Palgrave Macmillan, vol. 25(2), pages 147-161, March.
    7. Banerjee, Rhythm, 2024. "Shifting Tides: the Effect of Institutional Divestments on the Global Market," MPRA Paper 121922, University Library of Munich, Germany, revised 11 Apr 2024.
    8. Hastreiter, Nikolaus, 2024. "Can investor coalitions drive corporate climate action?," LSE Research Online Documents on Economics 125852, London School of Economics and Political Science, LSE Library.
    9. Heeb, Florian & Kölbel, Julian, 2024. "The impact of climate engagement: A field experiment," SAFE Working Paper Series 437, Leibniz Institute for Financial Research SAFE.
    10. Luo, Qiling & Xue, Minggao & Xiong, Yeqin & Ge, Xiaowen, 2024. "The backfire of mutual funds balancing financial objectives in ESG investments: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    11. Emilio Marti & Martin Fuchs & Mark R. DesJardine & Rieneke Slager & Jean‐Pascal Gond, 2024. "The Impact of Sustainable Investing: A Multidisciplinary Review," Journal of Management Studies, Wiley Blackwell, vol. 61(5), pages 2181-2211, July.

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    More about this item

    Keywords

    Corporate social responsibility; Real effects of financial markets; Institutional investors; Sustainability; Corporate governance;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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