Peer Effects in ESG Ratings: Evidence from Gender Pay Gap Disclosures
Abstract: Through peer benchmarking, ESG rating agencies spur competition among firms for better ratings. I study whether peer firm transparency influences a firm's decision to voluntarily disclose following a plausibly-exogenous increase in peer firm ESG disclosures, the introduction of mandatory gender pay gap reporting in the United Kingdom. I document that unregulated firms with comparable ESG ratings are more likely to voluntarily adopt gender pay gap disclosures. This effect is amplified if mandated peers are rated lower ex-ante, suggesting ESG rating competition. Interestingly, the effect is present among peers as selected by the ESG rating agency and not subsumed by peers along other dimensions (market capitalization or industry). Overall, the findings indicate that the impact of disclosure mandates extends beyond the de-jure reach of the regulation through rating agencies' practices of benchmarking and peer selection.
Wait what? The Consequences of not disclosing feedback-stimulating information.
with Matthias Lassak (Aarhus University)
Abstract: Recent evidence suggests that managers use voluntary CAPEX guidance to stimulate market feedback by incentivizing informed trading in their stock prices. We show a related decrease in nondisclosing firms' informed trading measures. The reduction in informed trading is pronounced in unexpected nondisclosure, consistent with the interpretation that traders perceive nondisclosure as indicating low gains from informed trading. Less informed trading is associated with a reduction in investment-q sensitivity and future performance for nondisclosing firms. Overall, we document a novel link between managers' strategic disclosure decisions, the feedback channel, and real effects.
Managing Corporate Emission Disclosures Through Divestitures
with Frank Ecker (Frankfurt School of Finance & Management)
Abstract: This paper provides evidence that, after the introduction of mandatory GHG emissions disclosures in the United Kingdom, divestitures become more likely, particularly divestitures to acquirers outside Europe. These transactions significantly decrease (increase) the regulated sellers' (acquirers') emission levels and intensities. Divestitures of regulated firms carry significantly lower valuation multiples compared to those by non-regulated firms, indicating fire sale prices for the divested assets. However, an increased likelihood of influential common ownership in the divesting and acquiring entity suggests that previous owners of the divested assets retain at least some of the economic benefits.
The results document a possibly unintended consequence of geographically-limited environmental disclosure mandates: Rather than reducing the actual emissions of their assets, firms may restructure by transferring legal ownership of high-emission assets to owners beyond the mandate's reach. The result is a mechanical decrease in the divesting firms' reported emissions which may not reflect a change in actual emissions.