Working Papers

The Surprising Performance of Green Retail Investors: A New (Behavioral) Channel

with Sumit Agarwal, Pulak Ghosh, Hong Zhang, and Jian Zhang

Abstract: Contrary to the prevailing wisdom that green investors willingly accept lower returns for sustainable investment, our analysis of account-level data from a major Indian bank indicates the opposite. We find that investors with a higher proportion of green stocks in their portfolios achieve superior risk-adjusted portfolio returns. To explain this surprising observation, we hypothesize—and empirically verify—that green investments may help investors mitigate detrimental behavioral bias, such as the disposition effect and under-diversification. Alternative mechanisms related to stock selection ability, aggregate demand shocks, and risk mitigation fail to explain green performance. Instead, tests utilizing abnormal temperatures as exogenous shocks support a causal interpretation of our findings. These results suggest a novel behavioral channel for fully understanding the implications of green preferences.

Firm Internationalization and Emissions Reduction: International Evidence

with Lingxia Sun, Jongmoo Jay Choi, and Hoje Jo

Abstract: Since climate change and environmental challenge is a global issue, one would expect MNCs to have greater sensibility to global environmental sustainability than domestic firms, reflecting global values and stakeholder concerns. A counter argument is that MNCs might be more opportunistic in engaging in regulatory arbitrage concerning emissions reduction leveraging their network capability. Using a sample of 11,477 unique firms from 63 countries over 2002-2022, we find the magnitude of carbon emissions and the ratings of emissions disclosure are positively associated with firm internationalization. In addition, U.S.-based MNCs generating sales from civil law countries and regions disclose more emissions information. Further, the relation between firm internationalization and emissions reduction is mediated by international environmental institutions such as the Kyoto Protocol. Finally, we find that MNCs are rewarded by a broader stakeholder community for their contributions on emissions reduction. The results support the new institutionalism theory, suggesting that MNCs’ emissions reduction perceived as environmental alignment with global norms.