earticle

영어

This paper investigates how corporate Environmental, Social, and Governance (ESG) actions affect firm value. By employing an event study around two close 5-to-4 Supreme Court rulings and using portfolio-based approaches, we document that sustainability is capitalized into the value of firms. When the Court awards broader regulatory authority to the EPA, polluting firms with the largest discrepancies vis-a-vis the new rules heralded by the Court exhibit the largest price responses. On the other hand, when the Court narrows the regulatory limit of an existing environmental law, polluting firms lose value. The announcement returns are more sensitive to the Court rulings for firms in regions with a higher level of trust. More generally, a portfolio of firms with cleaner production practices earns alphas (4.43% annually for value-weighted returns) compared to firms with toxic production practices that have similar exposure to well-known factor models. Firms with greener production practices show positive earnings surprises, higher revenue and profitability, and more capital inflow from institutional investors with longer horizons. The abnormal returns are more pronounced among firms in regions with a high level of trust. In sum, we show that firms gain value when they go green.