EURO 2024 Copenhagen
Abstract Submission

EURO-Online login

4388. Investors’ perception of firms’ ESG focus: Evidence from staggered implementations of Benefit Corporations law in the US

Invited abstract in session TD-18: AI and ESG for the small economy SDG agenda (EWG-ORD Workshop 2), stream OR for Development and Developing Countries.

Tuesday, 14:30-16:00
Room: 42 (building: 116)

Authors (first author is the speaker)

1. Laura Ferraro
Business Administration, University of Calabria
2. Devendra Kale
Business - Accounting, University of Rhode Island
3. Anis Triki
Business - Accounting, University of Rhode Island

Abstract

Benefit Corporations (BC) pursue a dual purpose: maximization of profits and generating societal and environmental benefits. BCs are becoming popular across the globe, with BC laws being passed in different countries. To date, BC laws have been passed in 43 US states and several countries in Europe and South America. Using the staggered adoption of BC law across US states, we examine how investors reacted to this law. We find that investors reacted negatively to the passing of the law. Our results are robust in using alternate measures of abnormal returns and excluding firms in the financial services sector.
Moreover, our results are robust regarding entropy balancing the three moments. This suggests that investors in the US do not favor corporations adopting a dual purpose (as opposed to a solo focus on profit maximization). We further find that the negative reaction is predominantly for smaller and loss-making firms. Since most of the BCs in the US are, in fact, small in size, investors expect smaller firms to adopt the BC status. We also find that investors’ negative reactions softened after the onset of the COVID pandemic when the focus on ESG saw an exponential increase. As an additional analysis, we are replicating our work in the Italian context, as it was the first European country to adopt the BC law. Our results are significant for stakeholders, including investors, boards, regulators, and analysts.

Keywords

Status: accepted

Back to the list of papers