Working Papers

Altruism or Self-Interest? ESG and Participation in Employee Share Plans

with Maxime Bonelli and Marie Brière

We ask how the ESG performance of firms affects the asset allocation of a large sample of French employees between their employer’s stock and alternative investments in firm-sponsored savings plans. After ESG incidents, employees are less likely to invest and they invest smaller amounts in their company’s stock. Incidents in the “Social” category, especially those related to working conditions and local incidents, are the ones that affect these investment decisions the most. Pecuniary motives are unlikely to explain this finding. Overall, our results suggest that ESG policies directly impacting the well-being of employees affect employee satisfaction and loyalty the most.

ESG News, Future Cash Flows, and Firm Value

with Philipp Krüger, Augustin Landier and Tianhao Yao

We investigate how sell-side analysts adjust their earnings forecasts following negative ESG incidents. We find that after learning about negative ESG news, analysts significantly downgrade their earnings forecasts over all horizons, including long-term horizons. Negative ESG incidents affect earnings forecasts at longer horizons than other types of corporate incidents. The negative revisions of earnings forecasts reflect expectations of lower future sales (rather than higher future costs). Forecast revisions explain most of the negative impact of ESG incidents on firm value. In Europe, analysts who exhibit greater sensitivity to ESG news provide significantly more precise forecasts than their peers.

 Online Reputation and Debt Capacity

with Alexandre Garel, Arthur Petit-Romec and Jean-Philppe Weisskopf

This paper explores the effects of online customer ratings on financial policy. Using a large sample of Parisian restaurants, we find a positive and economically significant relation between customer ratings and bank debt. We use the locally exogenous variations in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Customer ratings have more impact on debt when information asymmetry is higher. They affect financial policy through a reduction in cash flow risk and greater resilience to demand shocks. Restaurants with good ratings use their extra debt to invest in tangible assets.

Set-up Costs and the Financing of Young Firms

with Jean-Stéphane Mésonnier and Guillaume Vuillemey

We show that set-up costs are a key determinant of the capital structure of young firms. Theoretically, when firms face high set-up costs, they can only be established by lengthening debt maturity. Empirically, we use a large sample of French firms to show that young firms have a significantly higher leverage and issue longer-maturity debt than seasoned companies. As predicted by the model, these patterns are stronger in high set-up cost industries and for firms with lower profitability. Last, we show that, following an exogenous shock that reduces banks’ supply of long-term loans, young firms in high set-up cost industries grow significantly less.

The Unintended Consequences of Regulations in Emerging Financial Market: Evidence from the Chinese IPO Market

with Xiaohui Wu, Qi Zeng, and Yan Zhang

This paper explores the impact of regulations imposed by Chinese authorities on the development of the Chinese IPO market. Because of limits on prices and proceeds, the Chinese IPO market does not attract companies that need cash the most. Some regulations exclude firms from the domestic IPO market. Others induce firms with large growth options to list abroad. Some IPO firms that raise large amounts of cash decide to pay large dividends shortly after going public. Investors interpret this behaviour as evidence that they overestimated the growth options of these firms at the time of their IPO and react accordingly.

Do Analysts’ Preferences Affect Corporate Policies?

with François Degeorge, Ambrus Kecskes, and Sébastien Michenaud

Equity research analysts tend to cover firms about which they have favorable views. We exploit this tendency to infer analysts’ preferences for corporate policies from their coverage decisions. We then use exogenous analyst disappearances to examine the effect of these preferences on corporate policies. After an analyst disappears, firms change their policies in the direction opposite to the analyst’s preferences. The influence of analyst preferences on policies is stronger for firms for which analyst coverage is likely to matter more: young firms, and firms with higher market valuations. Our results suggest that firms choose their corporate policies, in part, to be consistent with the preferences of their analysts.