Conference Programme

A growing political backlash against sustainable investing has prompted many U.S. states to enact anti-ESG laws restricting public funds from considering ESG factors. We examine how such legislation in implementing states shapes the ESG practices of firms headquartered elsewhere through ownership networks of state pension funds. We find firms with greater exposure to affected pensions experience significant declines in ESG performance, even when headquartered outside the enacting states. These declines arise through both exit and voice channels, and are more pronounced in Republican-leaning states. Financial markets respond asymmetrically: low-ESG firms earn positive announcement-window returns, whereas high-ESG firms show muted reactions. Treated firms also report modest improvements in accounting performance. Overall, our evidence shows that anti-ESG policies can propagate across state borders through capital market linkages.

This paper examines the association between firms' adoption of environmental and social (ES) performance goals in CEO pay (ES pay) and ES-related shareholder activism. I argue that ES pay serves as an information cue when activist shareholders screen companies’ ES intent and quality. Specifically, firms face a lower likelihood of being targeted by ES shareholder proposals following the adoption of ES pay. This negative association exists when firms adopt objective ES goals in CEO pay, but does not exist when firms adopt subjective ES goals. Such a screening effect is stronger when firms' industry peers experience high levels of ES controversies. Empirical analysis of S&P 1,500 firms from 2007 to 2021 supports the hypotheses. In addition, shareholders are more likely to withdraw proposals if firms have ES pay. These findings suggest that ES pay strengthens the alignment of shareholder interests and managerial incentives concerning ES issues. Overall, this study contributes to the literature on environmental, social, and governance (ESG), executive compensation, and shareholder activism.

Research on corporate political activity (CPA) has long recognized firms’ efforts to shape their regulatory environments, yet much of this work treats CPA as a unified construct and evaluates its consequences through outcomes distant from the objects of political influence. Drawing on an institutional perspective, we argue that different forms of CPA are differentially suited to distinct arenas of regulatory governance and therefore have systematically different implications for enforcement outcomes. We distinguish between lobbying, which enables sustained engagement with administrative agencies during policy implementation, and campaign contributions, which primarily target elected officials during policy formation. We test these arguments using facility-level enforcement under the U.S. Clean Air Act from 2011-20, linking enforcement actions and penalties to parent-firm political engagement. Consistent with our theoretical framework, lobbying is associated with greater enforcement leniency, while campaign contributions exhibit no comparable association. We further show that the enforcement effects of lobbying are stronger in conservative political environments, highlighting the role of institutional receptivity in conditioning how political engagement translates into administrative discretion. By disaggregating CPA and situating political strategies within the institutional arenas in which enforcement decisions are made, this study advances a more precise theoretical understanding of how firms shape regulatory implementation.