Essays on Responsible and Sustainable Finance

TL;DR

This dissertation investigates how local communities influence corporate financial decisions and sustainability, revealing that regulatory changes, subsidies, and bankruptcies significantly impact municipal bond yields and corporate environmental actions.

Contribution

It provides new empirical evidence on the effects of fiduciary duty, subsidies, and bankruptcies on municipal bond yields and corporate sustainability discussions.

Findings

Fiduciary duty reduces bond yields by 9%.

Subsidies increase bond yield spreads by 15 bps.

Bankruptcies raise municipal bond yields by 10 bps.

Abstract

The dissertation consists of three essays on responsible and sustainable finance. I show that local communities should be seen as stakeholders to decisions made by corporations. In the first essay, I examine whether the imposition of fiduciary duty on municipal advisors affects bond yields and advising fees. Using a difference-in-differences analysis, I show that bond yields reduce by 9\% after the imposition of the SEC Municipal Advisor Rule. In the second essay, we analyze the impact of USD 40 billion of corporate subsidies given by U.S. local governments on their borrowing costs. We find that winning counties experience a 15 bps increase in bond yield spread as compared to the losing counties. In the third essay, we provide new evidence that the bankruptcy filing of a locally-headquartered and publicly-listed manufacturing firm imposes externalities on the local governments. Compared to matched counties with similar economic trends, municipal bond yields for affected counties increase by 10 bps within a year of the firm filing for bankruptcy. The final essay examines whether managers walk the talk on the environmental and social discussion. We train a deep-learning model on various corporate sustainability frameworks to construct a comprehensive Environmental and Social (E and S) dictionary. Using this dictionary, we find that the discussion of environmental topics in the earnings conference calls of U.S. public firms is associated with higher pollution abatement and more future green patents.