Shareholder Engagement on Environmental,Social, and Governance Performance

We study behind-the-scenes investor activism promoting environmental, social, and governance (ESG) improvements by means of a proprietary dataset of a large international, socially responsible activist fund. We examine the activist’s target selection, forms of engagement, impact on ESG performance, drivers of success, and effects on the targets’ operations and value creation. Target firms are typically large and visible, perform well, and have high liquidity (stock turnover) and low ESG performance. Engagement induces ESG rating adjustments: firms with poor ex ante ESG ratings experience a ratings increase after complying with the activist’s demands, whereas firms with high ex ante ESG ratings experience a ratings decrease following the revelation of their ESG problems. Activism that is focused on environmental and social issues is more likely to succeed if targets are ESG-sensitive (i.e., they have a strong ex ante ESG profile). Successful engagements boost targets’ sales. Risk-adjusted excess stock returns (with four-factor adjustment and relative to a matched sample of non-engaged firms) of successful engagements outperform those of unsuccessful engagements by 2.7%. Results are especially strong for firms with low ex ante ESG scores. Specifically, targeted firms in the lowest ex ante ESG quartile outperform matched peers by 7.5% in the year after the end of the engagement. Our results thus suggest that the activism regarding corporate social responsibility generally improves ESG practices and corporate sales and is profitable to the activist. Taken together, we provide direct evidence that ethical investing and strong financial performance, both from the activist’s and the targeted firm’s perspective, can go hand-in-hand together.

     

A Note on Viable Proposals*

Sengupta and Sengupta (“Viable Proposals,”International Economic Review 35 (1994), 347–59.) consider a payoff vector of a TU‐game as a viable proposal if it challenges each legitimate contender. They show that for each game the set of viable proposals is nonempty. Their proof, however, has a flaw. I present a proof based upon a result by Kalai and Schmeidler (“An Admissible Set Occurring in Various Bargaining Situations,”Journal of Economic Theory 14 (1977), 402–11) .     

Asymmetric ACD models: Introducing price information in ACD models

This paper proposes an asymmetric autoregressive conditional duration (ACD) model, which extends the ACD model of Engle and Russell (1998). The asymmetry consists of letting the duration process depend on the state of the price process. If the price has increased, the parameters of the ACD model can differ from what they are if the price has decreased. The model is applied to the bid-ask quotes of two stocks traded on the NYSE and the evidence in favour of asymmetry is strong. Information effects (Easley and O'Hara 1992) are also empirically relevant. As the model is a transition model for the price process, it delivers `market forecasts' of where prices are heading. A trading strategy based on the model is implemented using tick-by-tick data.While remaining responsible for any error in this paper, the authors would like to thank R. Anderson, G. Le Fol, C. Gouriéroux, J. Jasiak, W. Pohlmeier, A. Roell, O. Scaillet, S. Wei and three anonymous referees for useful remarks and suggestions on previous versions. The authors would also like to thank A. Ruttiens from KBC-CBC for useful discussions on practical issues related to trading. Support of the European Commission Human Capital and Mobility Program through the network `Econometric inference using simulation methods' is gratefully acknowledged. This paper presents research results of the Belgian Program on Interuniversity Poles of Attraction initiated by the Belgian State, Prime Minister's Office, Science Policy Programming. The scientific responsibility is assumed by the authors.     

Entry regulation as a barrier to entrepreneurship

Using a comprehensive database of European firms, we study the effect of market entry regulations on the creation of new limited-liability firms, the average size of entrants, and the growth of incumbent firms. We find that costly regulations hamper the creation of new firms, especially in industries that should naturally have high entry. These regulations also force new entrants to be larger and cause incumbent firms in naturally high-entry industries to grow more slowly. Our results hold even when we correct for the availability of financing, the degree of protection of intellectual property, and labor regulations.     

The Political Economy of Deposit Insurance

This paper uses a political economy framework to analyze cross-country differences in deposit insurance coverage. It finds supporting evidence of the significance of private interest theories in explaining coverage of deposit insurance. Deposit insurance coverage is significantly higher in countries where poorly capitalized banks dominate the market and in countries where depositors are poorly educated. The analysis does not find that coverage is significantly related to political-institutional variables, such as the degree of democracy or restraints on the executive, or to proxies for the general level of institutional development, such as per capita income or property rights. These results provide evidence in support of the private interest view, according to which risky banks lobby for extensive coverage.     

Measurement of Quality of Life and Well‐Being in France: The Drivers of Subjective Well‐Being

Ever since the publication of the Stiglitz Report, France has been heavily involved in the measurement of well‐being. The French Statistical Institute (INSEE) has expanded the scope of its existing surveys. It has also launched an innovative experimental survey which, drawing upon a single statistical source, aims for the first time to explore the different dimensions of both objective and subjective quality of life, as highlighted in the Stiglitz Report. It allows us to study, at the individual level, correlations between these dimensions and the accumulation of deprivations. It has enabled us to better understand the links between determinants generally referred to as objective dimensions of quality of life (such as health or education) and subjective well‐being. This information is of paramount importance for policy makers who cannot act directly on the level of people's satisfaction but can only act upon the levers of objective dimensions. This paper presents the main findings of the experimental survey.     

'More is not necessarily better': the relationship between the quantity and quality of training efforts

International comparisons indicate that, on average, Belgian companies spend less on training than their French, German and Dutch counterparts. Encouraging companies to commit to training has consequently been an important policy goal over the last few years. One notable aspect of the policy to encourage training efforts by companies is that the effort is always represented in terms of the resources invested (input), not in terms of the learning achieved (output) or the quality of training programmes (throughput). Government policy is aimed at increasing the level of investment in company training. One of the questions we wish to investigate is whether this input-oriented approach to the training issue is actually effective. Whether companies will succeed in raising human capital to ever-increasing levels may depend not only (and maybe not even chiefly) on the extent of financial investment in training. The investment level does not necessarily determine the quality of the training processes developed by companies. Therefore, this paper focuses on the following research questions: (1) to what extent do companies monitor the systematic development of sufficiently effective training processes? In other words, is qualitative under-investment an issue, alongside financial under-investment? (2) Is the level of financial investment in company training correlated to the quality of training processes? The empirical data confirm that a kind of 'qualitative' under-investment can be reported and that the relationship between the level of investment in training and the quality of the training programmes is weak.     

Building the Legitimacy of Whistleblowers: A Multi‐Case Discourse Analysis

Evidence suggests that society still does not view whistleblowers as wholly legitimate—despite legal protections now offered in some jurisdictions, such as the United States. Drawing on a discourse analysis (i.e., an examination of statements), we investigate the well‐publicized stories of seven whistleblowers from 69 sources, including books, first‐ and second‐hand interviews, websites, and videos. Our focus is to examine how whistleblower discourses can build legitimacy by more tightly defining the whistleblower role and demonstrating its alignment with social norms. Using whistleblower self‐narratives, we identify four narrative patterns: (i) Trigger(s)—the event(s) leading to whistleblowing; (ii) Personality traits—whistleblower's morality, resourcefulness, and determination; (iii) Constraints—barriers requiring regulatory and organizational change; and (iv) Consequences—the longer term positive impact of the whistleblowing act. These patterns rely on symbolic, analogical, and metaphorical framing to allow others to better understand the role of whistleblowers and enlist their support. Exploring a data set of 1,621 press articles, we find indications that these narrative patterns resonate in the media—which provide a form of support and may be instrumental in legitimizing the whistleblower role. Grounded on these results, we develop a legitimacy construction model of the whistleblower role, that is, a representation of how role legitimacy is produced and sustained. From this model, we identify a number of important areas for future research.