The COVID-19 shock and its unprecedented financial consequences have brought about vast uncertainty concerning the future of climate actions. We study the cross-section of stock returns during the COVID-19 shock to explore investors' views and expectations about environmental issues. The results show that firms with responsible strategies on environmental issues experience better stock returns. This effect is mainly driven by initiatives addressing climate change (e.g., reduction of environmental emissions and energy use), is more pronounced for firms with greater ownership by investors with long-term orientation and is not observed prior to the COVID-19 crisis. Overall, the results indicate that the COVID-19 shock has not distracted investors' attention away from environmental issues but on the contrary led them to reward climate responsibility to a larger extent.

Bank capital is the cornerstone of bank regulation and is considered a key determinant of a bank's ability to withstand economic shocks. In the area of bank capital regulation, the general view is that more bank capital is better, irrespective of who provides it. In this paper, we investigate whether the investment horizon of bank capital providers matters for bank performance during the recent financial crisis. We observe that banks with more short-term investor ownership have worse stock returns during the crisis. Further exploration suggests that this is partially because banks with higher short-term investor ownership took more risk prior to the crisis but mainly because they experienced higher selling pressure during the crisis. Our results confirm the economic benefit of bank capital in helping banks to perform better during crises. However, when we decompose bank capital by the nature of its providers, we show that more capital is associated with worse performance when it is provided by short-term institutional investors.

We examine the relationship between institutional ownership and bank capital. Using a large sample of U.S. banks, we show that banks with greater institutional ownership operate with substantially higher capital ratios. The results are robust to controlling for standard determinants of bank capital structure, including market- and accounting-based risk measures. The results hold both for indexers and non-indexers, indicating that the effect of institutional ownership on bank capital cannot be explained by self-selection. We further address endogeneity concerns using an instrumental variable strategy based on the inclusion of banks in the S&P index. We find supporting evidence that the superior monitoring abilities of institutional investors, which reduce the severity of agency costs, is the main explanation for our results.

This paper explores the interplay between female representation in mutual funds’ management teams and their voting behavior. We find that women-led mutual funds are more likely to support environmental and social (ES) proposals, but not governance ones. This result is robust to excluding sustainable funds, alleviating concerns that the findings are driven by the self-selection of female fund managers into sustainable funds. While women-led mutual funds are also more likely to vote with management in firms headed by female CEOs, this does not conflict with their greater support for ES shareholder proposals. Overall, our results suggest that female representation in fund management teams is related to their voting behavior on ES issues.

This paper examines the influence of CEO reputation on corporate proxy voting. Relying on prestigious business awards (through which the CEO is elevated to superstar status) as salient shocks to CEO reputation, we find that shareholders in aggregate, and mutual funds in particular, are more likely to vote with management (i.e., against shareholder proposals) when the CEO is a superstar. We use a battery of matching procedures to mitigate the concern that these results are driven by selection. We further show that shareholder proposals, especially contested ones and those with positive ISS recommendations, are significantly more likely to fail when the CEO is a superstar. Our results suggest that investors are sensitive to the external appraisal conveyed by the superstar status and prefer not to oppose management.

We model and analyze the interplay of capital structure and labor union reversible bargaining tools (such as union-sponsored shareholder proposals). Unions counter firms’ ex-post strategic use of debt by employing bargaining tools that can be reversed depending on firm performance. Firms adjust debt ex ante to make underinvestment a credible threat if the bargaining tools are not reversed. The use of reversible bargaining tools is negatively affected by debt, decreases for riskier firms when the state of the economy is low, and reduces the profits of safer firms. Consistently, we find that union-sponsored shareholder proposals are negatively related to leverage, decrease for riskier firms during the 2008–2009 financial crisis, and are negatively associated with the profitability of safer firms.

This article introduces a new measure of a firm’s negative impact on biodiversity, the corporate biodiversity footprint (CBF), and studies whether it is priced in an international sample of stocks. On average, the CBF does not explain the cross-section of returns between 2019 and 2022. However, a biodiversity footprint premium (higher returns for firms with larger footprints) began emerging in October 2021 after the Kunming Declaration, which capped the first part of the UN Biodiversity Conference (COP15). Consistent with this finding, stocks with large footprints lost value in the days after the Kunming Declaration. The launch of the Taskforce on Nature-related Financial Disclosures (TNFD) in June 2021 had a similar effect. These results indicate that investors have started to require a risk premium upon the prospect of, and uncertainty about, future regulation or litigation to preserve biodiversity.

In this study, we explore the implications of institutional investor distraction for earnings management. Our identification approach relies on a firm-level measure of institutional investor distraction that exploits exogenous attention-grabbing shocks to unrelated parts of institutional investors' portfolios. We find that firms with distracted institutional shareholders engage more in both accrual-based and real earnings management. Further analyses show that the association between investor distraction and earnings management is stronger in firms with low analyst coverage and weak board monitoring, as well as in firms where managing earnings upward allows meeting or just beating their earnings target. Collectively, our results suggest that managers exploit the loosening in monitoring intensity resulting from investor distraction by engaging in earnings management. Even in the presence of institutional investors with superior monitoring abilities, limited attention may induce insufficient monitoring of earnings management practices.