We investigate the impact of public climate concerns on corporate ESG performance and find a negative association between the two variables. Our mechanistic analysis suggests that public climate concern increases firm risk, which explains the negative effect of ESG performance. This negative effect is exacerbated by inefficient corporate investments and mitigated by increased local social trust. Furthermore, the negative relationship between climate attention and ESG performance is more pronounced for companies with weak CEO hometown identify, high resource acquisition costs, non-heavy polluting industries and in the colder northern regions of China. The findings highlight the need to address the challenging impact of climate attention on corporate sustainable performance by enhancing regional social trust and CEOs' sense of belonging.

We empirically evaluate 20 prominent contributions to a broad range of areas in the empirical corporate finance literature. We assemble the necessary data and then apply a single, simple econometric method, the connected-groups approach of Abowd, Karmarz, and Margolis (1999), to appraise the extent to which prevailing empirical specifications explain variation of the dependent variable, differ in composition of fit arising from various classes of independent variables, and exhibit resistance to omitted variable bias and other endogeneity problems. In particular, we identify and estimate the role of observed and unobserved firm- and manager-specific characteristics in determining primary features of corporate governance, financial policy, payout policy, investment policy, and performance. Observed firm characteristics do best in explaining market leverage and CEO pay level and worst for takeover defenses and outcomes. Observed manager characteristics have relatively high power to explain CEO contract design and low power for firm focus and investment policy. Estimated specifications without firm and manager fixed effects do poorly in explaining variation in CEO duality, corporate control variables, and capital expenditures, and best in explaining executive pay level, board size, market leverage, corporate cash holdings, and firm risk. Including manager and firm fixed effects, along with firm and manager observables, delivers the best fit for dividend payout, the propensity to adopt antitakeover defenses, firm risk, board size, and firm focus. In terms of source, unobserved manager attributes deliver a high proportion of explained variation in the dependent variable for executive wealth-performance sensitivity, board independence, board size, and sensitivity of expected executive compensation to firm risk. In contrast, unobserved firm attributes provide a high proportion of variation explained for dividend payout, antitakeover defenses, book and market leverage, and corporate cash holdings. In part, these results suggest where empiricists could look for better proxies for what current theory identifies as important and where theorists could focus in building new models that encompass economic forces not contained in existing models. Finally, we assess the relevance of omitted variables and endogeneity for conventional empirical designs in the various subfields. Including manager and firm fixed effects significantly alters inference on primary explanatory variables in 17 of the 20 representative subfield specifications.

We examine the impact of cross-border mergers and acquisitions on a target firm’s risk and return based on a sample of partially acquired target firms in 18 emerging countries between 1990 and 2007. We find that cross-border acquisitions significantly reduce both the total and downside risk of the target firms and that this reduction is more significant in acquisitions undertaken by bidders from countries that have better protection of investor rights. We also show that this risk reduction improves the risk adjusted performance of these firms. Thus, we conclude that cross-border partial acquisitions benefit an emerging market investors’ risk-return trade off by reducing investment risk and increasing investment returns; policy makers in emerging markets may be well advised to open their markets for partial cross-border acquisitions.

The seminal works of Jensen and Meckling (1976) and Myers (1977) highlight the conflicts of interest between the owners, managers, and debt holders of the firm and discuss the risk-shifting behavior of the managers assumed for our purpose to be the“firm” in detriment of their debt holders. Although a considerable amount of research has been undertaken on this topic, much less studies are devoted to endogenizing risk choices in the presence of financial guarantees and in the context of corporate project financing. A firm risk’s appetite increases when it has a guarantee contract on its debt, which creates a conflict between the firm and the guarantee provider. Addressing formally this moral hazard issue, we propose an equilibrium model in which the borrowing firm and the guarantee provider pre-commit themselves to conscripted risk levels at the signature of the loan guarantee contract. We show if the borrowing firm and the guarantor precommit, the equilibrium risk level is lower than the one the firm will choose unilaterally. For short (long) maturity debts, both parties gain by agreeing on a high (low) risk project when the firm shareholders have a big equity stake in the new project. We also study the trade-off between the borrowing firm’s capital structure and its risk level. The optimal risk level of the firm is entirely determined by its ex-post capital structure.