How do banks contribute to the green economy? Using a unique dataset detailing firms' revenue exposure to green business activities, we present new evidence that firms generating revenue from green products and services are associated with lower syndicated loan spreads. We find that the green revenue effects on loan spreads are attributable to firms' prospects tied to climate change-related opportunities and banks' environmental orientation. Foreign banks subject to mandatory environmental, social, and governance (ESG) disclosure regulations reduce the loan spreads to green revenue firms. We also find suggestive evidence that firms with green revenue tend to file more green patents following loan origination. While banks typically perceive green innovation as riskier and demand higher loan spreads, this effect is offset if a firm also generates green revenue. Collectively, our results highlight the pivotal role that banks play in channeling financial resources toward green business practices.

We examine whether and how common ownership affects Environmental, Social, and Governance (ESG) ratings—an important research question given the increasing use of these ratings in investment decisions and corporate evaluations. We find that companies with major shareholders in common with the rating agency (“sister firms”) tend to receive higher ESG ratings. When a company becomes a sister firm through a change in the rating agency's ownership structure, its rating from that agency is subsequently upgraded, whereas its ESG ratings from other agencies remain unchanged. Sister firms exhibit greater rating disagreements across agencies than other firms. The higher ESG ratings for sister firms are partly attributable to the transfer of immaterial positive ESG information through common owners. The common ownership effect is more pronounced when the owner can exert a greater influence on the rating agency. Moreover, sister firms with initially elevated ratings demonstrate poorer future ESG performance. Overall, our findings suggest that owners can affect ESG ratings of their portfolio companies in a way consistent with their influence and interest.

This study empirically explores the dynamic relation between the environmental and social (ES) performance of a firm and its stock market returns. We find robust evidence that worse stock market performance increases firms’ efforts on ES activities. Specifically, firms are more likely to improve their product and diversity performance and enhance their ES strengths rather than reduce ES concerns after poor stock market performance. This finding that poor stock market performance precedes enhanced ES performance is present (i) in firms with more financial slack, (ii) in firms with higher customer awareness, (iii) during the post-financial crisis period, and (iv) when a firm's shareholder activism on ES issues is intense. Our results underscore the importance of stock market performance in corporate ES decisions.

We show that information complementarities play an important role in the spillover of transparency shocks. We exploit the revelation of financial misconduct by S&P 500 firms, and in a “Stacked Difference‐in‐Differences” design, find that the implied cost of capital increases for “close” industry peers of the fraudulent firms relative to “distant” industry peers. The spillover effect is particularly strong when the close peers and the fraudulent firm share common analyst coverage and common institutional ownership, which have been shown to be powerful proxies for fundamental linkages and information complementarities. We provide evidence that increase in the cost of capital of peer firms is due, at least in part, to “beta shocks.” Disclosure by close peers—especially those with co‐coverage and co‐ownership links—also increases following fraud revelation. Although disclosure remains high in the following years, the cost of equity starts to decrease.