A publication titled “Climate events and return comovement” on Journal of Financial Markets by Ben Marshall, Harvey Nguyen, Nuttawat Visaltanachoti and co-authors in November 2022

Abstract

We show that individual stock returns comove more with market returns when there are climate disasters such as hurricanes and floods. Comovement increases in the month of and the month following the disaster before declining back to normal levels. The disaster impact is stronger in recessions and crisis periods but is evident in all periods. The increased return correlation stems more from an increase in covariance than an increase in stock or market standard deviation. Moreover, we show climate events have a greater impact on comovement in stocks with greater sensitivity to their local economy and higher information asymmetry.

A publication titled “Retail investor attention and corporate green innovation: Evidence from China” on Energy Economics by George Wu and co-authors in November 2022

Abstract

This paper investigates whether retail investor attention promotes or inhibits corporate green innovation. Using Chinese nonfinancial public listed firms from 2011 to 2020, we find that retail investor attention significantly positively impacts corporate green innovation. This finding still holds after a series of robustness tests for possible endogeneity concerns, alternative explanatory variables, and regression methods. We further verify that retail investor attention increases corporate green innovation by increasing information transparency, alleviating financing constraints and deterring agency costs. Cross-sectional heterogeneity analysis further supports our channel test, in which our results are pronounced for firms with less information asymmetry, higher reputation capital and better corporate governance characteristics. Our results shed essential insight into sustainable and green growth from a micro enterprise perspective in the digital economic era.

A publication titled “CSR and idiosyncratic risk: Evidence from ESG information disclosure” on Finance Research Letters by George Wu and co-authors in October 2022

Abstract

Using the corporate social responsibility (CSR) report disclosure as an external shock on investors’ heterogeneous belief in China, we find that firms with environmental, social and governance (ESG) information disclosure have lower idiosyncratic risk than their counterparts. This finding is robust to the parallel-trend assumption, placebo test, PSM-DID design, and alternative idiosyncratic risk calculation. We conclude that CSR engagement could reduce firms’ idiosyncratic risk by providing additional nonfinancial information to reduce investors’ opinion divergence.

A publication titled “Green bonds and implied volatilities: Dynamic causality, spillovers, and implication for portfolio management” on Energy Economics by Hung Do and co-authors in August 2022

Abstract

The long-term and sustainable development focuses of green bond together with its increasing popularity drives the need for a better understanding of its hedging effects against market risks. Our study investigates whether and how green bond can act as a hedging instrument against implied volatility, a measure of forward-looking market uncertainty. We find evidence of significant time-varying connectedness between green bond and implied volatilities of the stock, energy, and commodity markets. Building on this characteristic, investors are required to adopt an active portfolio management strategy to ensure the hedging effectiveness of green bond against implied volatilities. Specifically, this strategy requires frequent switches between long and short positions in the green bond market. Our simple simulation study shows evidence that applying connectedness regime-dependent trading strategies can increase the hedging effectiveness of green bond against implied volatilities in terms of risk-adjusted returns.

A publication titled “Natural Disasters, Trade Credit, and Firm Performance” on Economic Modelling by Hamish Anderson and co-authors in August 2022

Abstract

With the increasing frequency and intensity of destructive weather events, firms’ access to financing following disasters is critical. Few studies have investigated firms’ access to trade credit after natural disasters. We examine whether and how natural disasters, particularly urban floods, affect firms’ trade credit. Using a sample of Chinese companies from 2014 to 2019, we provide robust evidence that trade credit goes up after the occurrence of a flood disaster, an effect lasting about two years. The increase in trade credit is more pronounced for nonstate-owned, politically unconnected firms and firms located in areas with higher trust and collectivism. Channel analysis shows that the positive relationship is primarily due to credit constraints, confirming the substitution hypothesis of trade credit. Following a disaster, firms with access to additional trade credit experience a significant increase in firm performance. Our results are robust to endogeneity concerns and alternative explanations.

A publication titled “LGBT policy, investor trading behavior, and return comovement” on Journal of Economic Behavior & Organization by Hung Do and co-authors in April 2022

Abstract

Investors are attentive to lesbian, gay, bisexual, and transgender (LGBT) topic and a firm’s adoption of LGBT-supportive policy. Using a sample of new LGBT adopters from KLD database, we show that mutual funds with a strong (weak) preference for LGBT stocks increase (decrease) their holdings in new LGBT adopters and receive more (less) capital flows when investor sentiment toward LGBT is high. We also find significant evidence that LGBT-induced trading activities lead to comovements in stock returns and share turnover. Specifically, LGBT adopters experience an increase (decrease) in return comovement with a portfolio of existing (non-) LGBT stocks. Our additional analyses based on an alternative sample from the Human Rights Campaign yield consistent results and suggest that investors consider not only the presence or lack of LGBT-supportive policy in a firm but also its LGBT performance when they make trading decisions. This research makes an important contribution to our limited understanding of the LGBT policy effect on investors, a key group of the firm’s stakeholders.

A publication titled “Being nice to stakeholders: The effect of economic policy uncertainty on corporate social responsibility“ on Economic Modelling by George Wu and co-authors in March 2022

Abstract

Economic policy uncertainty (EPU) is an important source of risk and affects various firm decisions and the macro economy. However, existing studies provide no consensus on the effect of EPU on corporate social responsibility (CSR) engagement. In this paper, we investigate the impact of EPU on firms’ CSR engagement based on a sample of Chinese listed firms between 2008 and 2015. We find a significant positive relationship between EPU and a firm’s CSR engagement. A plausible mechanism is offered in support of the ‘sending signal hypothesis’ that firms tend to adopt more CSR engagement during periods of higher uncertainty, as it is a positive signal to their stakeholders. In addition, our results are more significant for firms loosing political connection unexpectedly, firms in regions with low social trust, firms with high profitability ability, and firms in political sensitive industries, which further validate the sending signal mechanism.

A publication titled “Asymmetric relationship between green bonds and commodities: Evidence from extreme quantile approach” on Finance Research Letters by Thi Thu Ha Nguyen and co-authors in November 2021

Abstract

The paper documents the asymmetric relationship between green bonds and commodities via the cross-quantilogram approach. Given the heterogeneity nature of individual commodities, we employ three commodity key groups, including energy, metals, and agriculture. As expected, the empirical evidence highlights the asymmetric behaviors of green bonds in response to diverse groups of commodities. Further, the hedging and diversification benefit of including green bonds to commodity portfolio is revealed. Defined by the uncorrelation or negative correlation with commodities in the periods of high volatility, we found the strongest hedging benefit of green bonds against the fluctuation of natural gas, some industrial metals, and agricultural commodities. While these underlying features are persistent in the long run, it is recommended to utilize the use of green bonds in the longer term (22 days) for higher portfolio performance rather than the short term (1 to 5 days).

A publication titled “Do climate risks matter for green investment?” on Journal of International Financial Markets, Institutions and Money by Ben Marshall, Harvey Nguyen, Nuttawat Visaltanachoti, Martin Young and co-authors in November 2021

Abstract

We consider the degree to which climate disasters influence investor behavior. Using data on events such as hurricanes and floods, we show that disasters prompt investors to pay more attention to socially responsible investing and invest more in mutual funds with an environmental focus. Consistent with a salience explanation, this effect is more pronounced for disasters that attract the most attention. The funds receiving the increased inflows do not have higher risk-adjusted returns before climate disasters, so there is no evidence to support a return-chasing explanation. Moreover, investors do not gain excess returns from their climate disaster-induced investment decisions.

A publication titled “The effect of corporate sustainability performance on leverage adjustments” on British Accounting Review by Yafeng Qin and co-authors in September 2021

Abstract

We examine the impact of corporate sustainability performance (CSP) on the speed at which firms adjust their leverage ratios to the target levels for a large sample of 31 countries from 2002 to 2018. Using two proxies of CSP, we find that firms with superior CSP tend to adjust faster toward their target leverage ratios. In exploring the potential underlying economic mechanisms through which CSP affects leverage adjustments, we find that better CSP helps firms to ease information asymmetry, enhance stakeholder engagement, push up stock prices in the stock market, and improve competitive advantage in the product market. In the cross section, the positive association between CSP and leverage adjustment speed is less pronounced in countries with high-quality institutions. The results remain unchanged in robustness tests. Overall, this paper highlights the important role of CSP in shaping corporate capital structure dynamics and suggests implications for corporate strategic planning on the privately optimal levels of CSP activities.