Political Conflict and Corporate Policies: Evidence from the Basque Country
with Stavriana Hadjigavriel, José Martin-Flores and Arthur Romec
This paper examines how political conflict affects corporate policies focusing on the Spanish Basque Country. We exploit the announcement by the Basque nationalist terrorist group ETA of the definitive cessation of its armed and extortion activities as an exogenous shock to the exposure of firms in the Basque Country and Navarre to extortion risk. We find that, following the announcement, firms in these regions significantly increase their cash holdings and exhibit higher cash flow sensitivity of cash. They also reduce investment in fixed assets and rely less on short-term debt, consistent with a shift away from strategic liquidity minimization under extortion risk. Finally, firm performance improves. Overall, the results suggest that political conflict distorts cash management, financing choices, and investment decisions.
Climate Risk Engagement
with Alexandre Garel, Arthur Romec and Feng Zhou
We study climate-risk related engagements by one of the world’s largest investors. Climate risk engagements represent a growing fraction of ESG engagements and are more frequent in high carbon emissions industries. We find that firms with greater carbon footprint and greater exposure to climate transition risk are more likely to be targeted. Following a climate risk engagement, targeted firms are more likely to commit to adopt a science-based climate target and to disclose climate-related information. Targeted firms also experience a reduction in their carbon emissions. However this reduction is limited to scope 1 and 2 emissions and its magnitude is inconsistent with net-zero targets. We also find that climate risk engagements are associated with greater voting support for management. Overall, our results suggest that shareholder engagement on climate issues can be an important tool in the fight against climate change.
The Real Effects of Valuation Mistakes: Evidence from Mergers and Acquisitions
with Johan Hombert, Alexei Ovtchinnikov and Philip Valta
We explore how biased investors affect the market for real assets and estimate the resulting efficiency losses. Investors subject to non-proportional thinking ask (too) high merger premia to sell low-price targets and offer (too) low merger premia to buy high-price targets. As a result, M&A premia are lower for high-price targets and both low- and high-price firms are less likely to be acquired than firms in the middle of the price distribution. We test these predictions using a large sample of M&A transactions. We also quantify the value lost because positive-synergy deals do not happen due to non-proportional thinking. Our structural estimation suggests that investors’ mistakes reduce the frequency of M&A transactions by about 8% and the value created by the M&A market by about 6%.
Corporate Social Responsibility and Employee Investment in Company Stock
with Maxime Bonelli and Marie Brière
Corporate social responsibility (CSR) affects employees’ investments in their company stock. We document this finding exploiting unique data on firm-sponsored savings plans in France. Following a CSR-related incident involving their employer, employees’ propensity to buy their employer’s stock drops by 26 percentage points. This effect is primarily driven by social incidents directly affecting employee working conditions. In contrast, environmental incidents exhibit no impact on these investments. Our findings cannot be fully explained by pecuniary motives and are not driven by CSR-conscious employees. Overall, our results point to employees considering their own well-being when making these investment decisions.
François Derrien 