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Long-term financial incentive of environmental responsibility -- socially responsible investing and firm cost of capital

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  • Wang, Yanbing
  • Delgado, Michael
  • Xu, Jin

Abstract

We investigate the long-term financial incentives of corporate environmental responsibility by examining whether an environmentally responsible firm benefits from a lower cost of equity capital, focusing on a particular channel: sustainable and responsible investing (SRI). Using treatment effect models, we test whether investments from SRI mutual funds with environmental screening criteria impact firm cost of equity capital. We find that accounting for interaction between firm and non-shareholder stakeholders, and potential agency costs associated with certain environmentally responsible activities of the firm, SRI investing may facilitate the alignment of firm environmental and financial goals.

Suggested Citation

  • Wang, Yanbing & Delgado, Michael & Xu, Jin, 2016. "Long-term financial incentive of environmental responsibility -- socially responsible investing and firm cost of capital," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235994, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:235994
    DOI: 10.22004/ag.econ.235994
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    Keywords

    Environmental Economics and Policy; Financial Economics;

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