Does Money Talk? Divestitures and Corporate Environmental and Social Policies*

The “Wall Street Walk” and Shareholder Activism: Exit as a Form of Voice

Nickolay Gantchev, Mariassunta Giannetti and Rachel Li

Review of Finance, 2022, vol. 26, issue 6, 1469-1508

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.

Keywords: Corporate social responsibility; Real effects of financial markets; Institutional investors; Sustainability; Corporate governance (search for similar items in EconPapers)
JEL-codes: G15 G23 G30 M14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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