Hulai Zhang

Using global evidence, we show that high-emission firms have lower price valuation ratios than low-emission firms in the same country, especially in recent years. The price gap coincides with heightened climate awareness following local natural disasters. In the presence of equity price pressure, high-emission firms reduce carbon emission levels, increase green innovation, and downsize operations. An instrumental variable approach, in which high-emission firms' price valuation is instrumented by local natural disasters, suggests that the effect on firms' actions is causal. Our findings are not solely driven by stricter environmental regulations, as private high-emission firms do not show the same results.

We analyze class action litigation as a corporate governance device. Firms that have lower internal governance standards and those with fewer external monitors are more likely to be indicted. Lawsuits announcements are salient information to the market, as firms, on average, lose 12.3% without a reversal up to three years following the first court date, which points at a substantial reputation loss. Indicted firms readjust their operations, meanwhile sophisticated investors decrease their positions. Stock market activity surges for firms suspected of fraud, and a conservative trading strategy yields significant returns over the subsequent period. Lawsuits also affect competitors both through competitive and contagion channels.