Job Market Paper

Beyond Borders: The Impact of Embodied Carbon Policy Costs on Industrial Firm Performance

While policymakers generally regard carbon pricing as effective and efficient, the average price of emissions worldwide remains low. A major concern is that unilateral enhancement of carbon policy could negatively impact firms’ competitiveness and performance. This paper investigates the impact of carbon policy on industrial firm outcomes in Europe, introducing a novel measure of embodied carbon policy costs that incorporates multi-region input-output linkages. In contrast to prior studies that have found limited effects from direct carbon policy costs, the inclusion of indirect costs via the global value chain leads to findings here that include a decrease in firm employment and output and an increase in total factor productivity and investment. These impacts tend to be more pronounced for small firms and for capital-intensive firms. Finally, a novel test for input substitution in this context estimates the extent to which carbon policy costs drive European industrial sectors to source inputs from countries lacking carbon regulations.  


Working Papers

Tracing the Impact of Sustainable Investors (with Xintong Li)

This paper empirically investigates the impact of sustainable investing on firms' financial performance and real outcomes. Albeit promising in theory, it is not evident how the pressure for sustainability exerted by value-aligned investors in secondary markets becomes an allocative force across firms. Focusing on the prevalent portfolio tilting strategy in practice, we delineate the transmission mechanism from investor preference, intermediated by funds, to underlying firms. Leveraging a 2016 natural experiment for identification, we find that firms with greater exposure to low-sustainability fund ownership experience acute downward pressure on their valuation and equity financing. However, no significant impact is observed on firm debt financing, consistent with our observation that the transmission of investors' pressure for sustainability falls short of generating substantial real impacts on firms' investment decisions. To meaningfully facilitate any environmental or social changes, evidence from this early episode in the recent ESG movement underscores the critical mass and coordination among sustainable investors

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Environmental Regulations and Firm Supply Chain Networks

This paper investigates the impact of environmental regulations on global supply chain relationships. Using a detailed dataset linking customer firms to their suppliers, the study finds that customers are more likely to terminate supplier relationships in response to more stringent environmental policies in the supplier countries. This effect is less pronounced for customer firms operating in manufacturing sectors and for supplier firms in countries that have emissions trading systems in place. Further analysis shows that the impact of suppliers' EPS on customer firms' performance, as propagated through the production network, is relatively limited, possibly due to low switching costs and competitive supplier markets that allow customers to adapt to changes in their supply chain. 

Work in Progress

Greening the Global Portfolio: Institutional Investment Shift in Developing Countries (with Xintong Li)

Despite the all-hands-on-deck urgency of committing to net zero emissions, global capital reallocation toward clean productions remains insufficient and a controversial mission for monetary authorities to undertake. The deployment of commercial finance through the asset management industry, which is expected to reflect the green taste of its investors, thus becoming crucial in aligning resources with the global sustainability objective. We first document the environmental bias of institutional investors' holdings in developing countries, where global funds disproportionally own more ``dirty" equities than holding the local market. We hypothesize that the observed attenuation of such bias over the past decades can be attributable to two main channels: (i) investor pressure funds to reallocate capital from dirty to clean firms, and (ii) the shifting comparative advantage in the destination countries. We aim to tests these two channels that contributing to the overall greening of global institutional portfolios in the 2010s. 

Carbon Policies, Pollution Outsourcing, and Firm Emissions

The Cost of Low-carbon Transitioning - Evidence from China ETS