IDEAS home Printed from https://ideas.repec.org/a/bla/bstrat/v35y2026i1p1473-1494.html

Climate Change and the Value of Institutional Shareholders: Evidence From the Paris Agreement

Author

Listed:
  • Pattarake Sarajoti
  • Pattanaporn Chatjuthamard
  • Pornsit Jiraporn
  • Sang Mook Lee

Abstract

We investigate the impact of institutional ownership on shareholder value around the adoption of the Paris Agreement, a historic global accord endorsed by nearly all nations and one of the most crucial climate change initiatives in history. Using event study methodology, we find that firms with higher institutional ownership experienced significantly more favorable stock market reactions, suggesting that institutional shareholders play a crucial role in promoting corporate sustainability. In particular, a rise in institutional ownership by one standard deviation improves the stock market reactions by 10.6%. Additionally, using innovative text‐based metrics derived from machine learning algorithms, we analyze the effects of firm‐specific climate change exposure, finding that whereas physical risks considerably moderate the positive impact of institutional shareholders, regulatory risks and new business opportunities do not. Our results highlight the critical importance of institutional investors in enhancing shareholder value and driving corporate climate responses, providing key insights for policymakers and business leaders.

Suggested Citation

  • Pattarake Sarajoti & Pattanaporn Chatjuthamard & Pornsit Jiraporn & Sang Mook Lee, 2026. "Climate Change and the Value of Institutional Shareholders: Evidence From the Paris Agreement," Business Strategy and the Environment, Wiley Blackwell, vol. 35(1), pages 1473-1494, January.
    • Handle: RePEc:bla:bstrat:v:35:y:2026:i:1:p:1473-1494
    DOI: 10.1002/bse.70239
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/bse.70239
    Download Restriction: no
    File URL: https://libkey.io/10.1002/bse.70239?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Nguyen, Phuong-Anh & Kecskés, Ambrus & Mansi, Sattar, 2020. "Does corporate social responsibility create shareholder value? The importance of long-term investors," Journal of Banking & Finance, Elsevier, vol. 112(C).
    2. Arthur Lewbel, 2012. "Using Heteroscedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(1), pages 67-80.
    3. Zeng, Shuai & Luo, Changyuan & Zhao, Laixun, 2023. "Destination trade credit and exports: Evidence from cross-country panel data," Journal of International Money and Finance, Elsevier, vol. 137(C).
    4. Cohen, Shira & Kadach, Igor & Ormazabal, Gaizka, 2023. "Institutional investors, climate disclosure, and carbon emissions," Journal of Accounting and Economics, Elsevier, vol. 76(2).
    5. Ouyang, Caiyue & Xiong, Jiacai & Liu, Li & Yao, Jun, 2024. "Geographic proximity and trade credit: Evidence from a quasi-natural experiment," Journal of Corporate Finance, Elsevier, vol. 84(C).
    6. Gao, Huasheng & Harford, Jarrad & Li, Kai, 2013. "Determinants of corporate cash policy: Insights from private firms," Journal of Financial Economics, Elsevier, vol. 109(3), pages 623-639.
    7. Tim Loughran & Bill Mcdonald, 2016. "Textual Analysis in Accounting and Finance: A Survey," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 54(4), pages 1187-1230, September.
    8. Venturini, Alessio, 2022. "Climate change, risk factors and stock returns: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 79(C).
    9. Chatjuthamard, Pattanaporn & Mook Lee, Sang & Kim, Young S. & Jiraporn, Pornsit & Potosky, Denise, 2024. "Climate change and shareholder value: Evidence from textual analysis and Trump’s unexpected victory," Journal of Business Research, Elsevier, vol. 180(C).
    10. Arifin, Taufiq & Hasan, Iftekhar & Kabir, Rezaul, 2020. "Transactional and relational approaches to political connections and the cost of debt," Journal of Corporate Finance, Elsevier, vol. 65(C).
    11. Hainmueller, Jens, 2012. "Entropy Balancing for Causal Effects: A Multivariate Reweighting Method to Produce Balanced Samples in Observational Studies," Political Analysis, Cambridge University Press, vol. 20(1), pages 25-46, January.
    12. Cardella, Laura & Fairhurst, Douglas & Klasa, Sandy, 2021. "What determines the composition of a firm's cash reserves?," Journal of Corporate Finance, Elsevier, vol. 68(C).
    13. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    14. Hong, Liu & Liu, Shiang, 2023. "Geographic diversification and corporate cash holdings," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 381-409.
    15. Samuel M. Hartzmark & Abigail B. Sussman, 2019. "Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows," Journal of Finance, American Finance Association, vol. 74(6), pages 2789-2837, December.
    16. Kristian D. Allee & Matthew D. Deangelis, 2015. "The Structure of Voluntary Disclosure Narratives: Evidence from Tone Dispersion," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 53(2), pages 241-274, May.
    17. Flammer, Caroline, 2021. "Corporate green bonds," Journal of Financial Economics, Elsevier, vol. 142(2), pages 499-516.
    18. Chang, Chong-Chuo & Tang, Hui-Wen, 2021. "Corporate cash holdings and total factor productivity – A global analysis," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    19. Gaspar, Jose-Miguel & Massa, Massimo & Matos, Pedro, 2005. "Shareholder investment horizons and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 76(1), pages 135-165, April.
    20. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    21. Chatjuthamard, Pattanaporn & Singh, Simran & Jiraporn, Pornsit & Lee, Sang Mook, 2024. "Climate change exposure, shareholder wealth, and the adoption of the Paris agreement: A text-based approach," International Review of Financial Analysis, Elsevier, vol. 94(C).
    22. Çolak, Gönül & Durnev, Art & Qian, Yiming, 2017. "Political Uncertainty and IPO Activity: Evidence from U.S. Gubernatorial Elections," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(6), pages 2523-2564, December.
    23. Emily Oster, 2019. "Unobservable Selection and Coefficient Stability: Theory and Evidence," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(2), pages 187-204, April.
    24. Jonathan Lewellen & Katharina Lewellen, 2022. "Institutional Investors and Corporate Governance: The Incentive to Be Engaged," Journal of Finance, American Finance Association, vol. 77(1), pages 213-264, February.
    25. Michael Effah Asamoah & Imhotep Paul Alagidede, 2023. "Foreign direct investment, real sector growth and financial development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 626-643, January.
    26. Ongsakul, Viput & Papangkorn, Suwongrat & Jiraporn, Pornsit, 2023. "Estimating the effect of climate change exposure on firm value using climate policy uncertainty: A text-based approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    27. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
    28. Chen, Hanwen & Liu, Siyi & Wang, Junjie & Wu, Zhijuan, 2022. "The effect of geographic proximity on corporate tax avoidance: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 72(C).
    29. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    30. Huber, Christoph & Huber, Jürgen & Kirchler, Michael, 2021. "Market shocks and professionals’ investment behavior – Evidence from the COVID-19 crash," Journal of Banking & Finance, Elsevier, vol. 133(C).
    31. Kim, Incheol & Ryou, Ji Woo & Yang, Rong, 2020. "The color of shareholders' money: Institutional shareholders' political values and corporate environmental disclosure," Journal of Corporate Finance, Elsevier, vol. 64(C).
    32. Lei, Jin & Qiu, Jiaping & Wan, Chi & Yu, Fan, 2021. "Credit risk spillovers and cash holdings," Journal of Corporate Finance, Elsevier, vol. 68(C).
    33. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    34. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    35. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    36. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    37. Li, Rui & Wang, Tianyu & Zhou, Mingshan, 2021. "Entrepreneurship and household portfolio choice: Evidence from the China Household Finance Survey," Journal of Empirical Finance, Elsevier, vol. 60(C), pages 1-15.
    38. Dyck, Alexander & Lins, Karl V. & Roth, Lukas & Wagner, Hannes F., 2019. "Do institutional investors drive corporate social responsibility? International evidence," Journal of Financial Economics, Elsevier, vol. 131(3), pages 693-714.
    39. Sudheer Chava, 2014. "Environmental Externalities and Cost of Capital," Management Science, INFORMS, vol. 60(9), pages 2223-2247, September.
    40. Brickley, James A. & Coles, Jeffrey L. & Terry, Rory L., 1994. "Outside directors and the adoption of poison pills," Journal of Financial Economics, Elsevier, vol. 35(3), pages 371-390, June.
    41. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(3), pages 335-359, September.
    42. Raz, Arisyi F., 2023. "Bank liquidity creation and religious observance: Evidence from Ramadan fasting," Journal of Corporate Finance, Elsevier, vol. 83(C).
    43. Fu, Xudong & Tang, Tian & Yan, Xinyan, 2019. "Why do institutions like corporate social responsibility investments? evidence from horizon heterogeneity," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 44-63.
    44. Angela K. Davis & Isho Tama†Sweet, 2012. "Managers’ Use of Language Across Alternative Disclosure Outlets: Earnings Press Releases versus MD&A," Contemporary Accounting Research, John Wiley & Sons, vol. 29(3), pages 804-837, September.
    45. Viput Ongsakul & Pandej Chintrakarn & Suwongrat Papangkorn & Pornsit Jiraporn, 2024. "Climate change exposure and dividend policy: evidence from textual analysis," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 32(3), pages 475-501, January.
    46. Chintrakarn, Pandej & Jiraporn, Pornsit & Tong, Shenghui & Chatjuthamard, Pattanaporn, 2015. "Estimating the effect of entrenched boards on firm value using geographic identification," Finance Research Letters, Elsevier, vol. 12(C), pages 109-116.
    47. Pornsit Jiraporn & Napatsorn Jiraporn & Adisak Boeprasert & Kiyoung Chang, 2014. "Does Corporate Social Responsibility (CSR) Improve Credit Ratings? Evidence from Geographic Identification," Financial Management, Financial Management Association International, vol. 43(3), pages 505-531, September.
    48. Hou, Canran & Liu, Huan, 2020. "Foreign residency rights and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    49. Makridis, Christos A. & Fröwis, Michael & Sridhar, Kiran & Böhme, Rainer, 2023. "The rise of decentralized cryptocurrency exchanges: Evaluating the role of airdrops and governance tokens," Journal of Corporate Finance, Elsevier, vol. 79(C).
    50. Huynh, Thanh D. & Xia, Ying, 2021. "Climate Change News Risk and Corporate Bond Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(6), pages 1985-2009, September.
    51. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Suyang & Qiao, Lu & Ren, Boru & Wang, Zilong, 2025. "Financing sustainability: Sustainable institutional investors and bank loan access," Journal of International Money and Finance, Elsevier, vol. 157(C).
    2. Treepongkaruna, Sirimon & Lhaopadchan, Suntharee & Jiraporn, Pornsit, 2025. "Temporal dynamics of firm-specific climate change exposure: A text-based approach," Research in International Business and Finance, Elsevier, vol. 77(PB).
    3. Hossain, Ashrafee & Masum, Abdullah-Al & Benkraiem, Ramzi, 2024. "Long-term institutional investors and climate change news Beta," Journal of Corporate Finance, Elsevier, vol. 89(C).
    4. Patrick Velte, 2023. "Which institutional investors drive corporate sustainability? A systematic literature review," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 42-71, January.
    5. Ashrafee Hossain & Abdullah‐al Masum & Samir Saadi & Ramzi Benkraiem & Nirmol Das, 2023. "Firm-Level Climate Change Risk and CEO Equity Incentives," Post-Print hal-04434397, HAL.
    6. Chatjuthamard, Pattanaporn & Wongboonsin, Kua & Ongsakul, Viput & Jiraporn, Pornsit, 2024. "Corporate culture, staggered boards, and managerial entrenchment: Evidence from textual analysis," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 404-418.
    7. Viput Ongsakul & Pattanaporn Chatjuthamard & Pornsit Jiraporn & Sang Mook Lee, 2025. "Climate Change, Innovation Efficiency, and Shareholder Wealth: Insights From the Paris Agreement," Business Strategy and the Environment, Wiley Blackwell, vol. 34(5), pages 6304-6324, July.
    8. Srivastav, Shashank Prakash & Kannadhasan, M., 2025. "Environment and Energy: Does climate risk shape the energy consumption behavior of firms?," Energy Economics, Elsevier, vol. 148(C).
    9. Chindasombatcharoen, Pongsapak & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit, 2023. "Corporate culture, cultural diversification, and independent directors: Evidence from earnings conference calls," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    10. Wang, Zhen & Wu, Kai, 2025. "How do institutional investors respond to climate change exposure? International evidence," Global Finance Journal, Elsevier, vol. 68(C).
    11. Wongsinhirun, Nopparat & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit, 2023. "Corporate culture and board gender diversity: Evidence from textual analysis," International Review of Financial Analysis, Elsevier, vol. 86(C).
    12. Xiaoqiong Wang & Siqi Wei & Xiaoyang Zhu, 2024. "Economic policy uncertainty and heterogeneous institutional investor horizons," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 39-67, January.
    13. Abu Amin & Ashrafee T. Hossain & Abdullah‐Al Masum, 2024. "Carbon emissions and abnormal cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(4), pages 3175-3209, December.
    14. Siamak Javadi & Abdullah‐Al Masum & Mohsen Aram & Ramesh P. Rao, 2023. "Climate change and corporate cash holdings: Global evidence," Financial Management, Financial Management Association International, vol. 52(2), pages 253-295, June.
    15. Chatjuthamard, Pattanaporn & Singh, Simran & Jiraporn, Pornsit & Lee, Sang Mook, 2024. "Climate change exposure, shareholder wealth, and the adoption of the Paris agreement: A text-based approach," International Review of Financial Analysis, Elsevier, vol. 94(C).
    16. Woraphon Wattanatorn & Pornsit Jiraporn, 2025. "Climate Change Exposure and Corporate Cash Reserves: International Evidence," International Review of Finance, International Review of Finance Ltd., vol. 25(4), December.
    17. Sirin, Selahattin Murat & Yilmaz, Berna N., 2025. "Tech firms and the renewable energy sector: Exploring the moderating effects of institutional ownership on financial connectedness," Research in International Business and Finance, Elsevier, vol. 80(C).
    18. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    19. Cui, Di & Ding, Mingfa & Han, Yikai & Suardi, Sandy, 2022. "Foreign shareholders, relative foreign policy uncertainty and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 84(C).
    20. Guo, Chenhao & Zhong, Rui, 2025. "Is green revenue vanity or sanity? Evidence from corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 101(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:bstrat:v:35:y:2026:i:1:p:1473-1494. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-0836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.