ABSTRACT

Empirical stylized facts in the literature concerning “sin” versus “angel” stocks
display asymmetry. Through an experiment, we examine whether such biases can be microfounded via individuals’ preferences and belief formations. We find that negative
environmental and social externalities have thrice the impact of positive externalities on
investments, ceteris paribus. Further, negative externalities modestly increase pessimism about
investment prospects while positive externalities have no discernible impact. The asymmetry
is pervasive, heterogeneous, and comparable to the magnitude observed in loss-aversion.
Beyond rationalizing stylized empirical facts, our findings help direct the growing theoretical
literature that models the implications of non-pecuniary individual investor behavior.

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ABSTRACT

Which vertical governance structures should MNCs use to improve social and environmental
conditions along their GVC suppliers? Currently, the conventional governance structure used by MNCs to
organize their GVCs is via a series of cascading contracts where responsibility for the various stages of
production is diffused along the value chain. However, while the cascading contract setup is effective at
rapidly detecting and resolving manufacturing/quality issues, it is far less effective at detecting and
responding to social and environmental problems that arise in the production process. In this paper, we
argue that partial internalization, especially in the first mile, can be a more socially responsible governance
structure than the current cascading contracts setup. First, we develop a formal analytical model to identify
the conditions under which partial internalization is expected to outperform the conventional cascading
contracts approach, both economically and socially. Second, we derive two hypotheses from our model and
outline the empirical strategy we intend to use to find support for our hypotheses. The intended contribution
of our paper is to propose and validate partial internalization as an alternative vertical governance structure
that can help MNCs more effectively respond to the social and environmental challenges that occur along
the most fragile links in their value chain.

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Abstract

This paper develops and tests an equilibrium model for analyzing active fund management with ESG considerations. Sustainable investing incentivizes mutual fund managers to intensify information acquisition, expanding the scope of the active fund industry. Sustainability-guided information and trading decisions result in increasing
portfolio deviation from benchmarks at the fund level, while they contribute to enhancing price informativeness and diminishing discount rates at the stock level. Collectively,
the negative ESG-expected return relation amplifies for green assets but weakens for
brown assets, as supported by evidence from the implied cost of equity capital.

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