Green Investors and Corporate Investment
نویسندگان
چکیده
Green investing, or socially responsible investing (SRI), which refers to making investment decisions according to both financial and ethical criteria, has become increasingly popular in recent years. This paper explores the effects of ethical screening on the investment decisions of firms that fail the screen (’polluting’ firms) and on their decisions to reform so as to pass the screen. The paper also analyzes the impact that short selling polluting firms by green investors would have on these firms. These issues are examined in an equilibrium setting with endogenous investment decisions and endogenous future outputs. We find that green investors can induce polluting firms to reform and that screening results in under-investing by polluting firms and over-investing by clean firms. We also find that short selling polluting firms by green investors can significantly increase polluting firms’ cost of capital and that it can leverage the effect on polluting firms’ decisions to reform.
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