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Analyst Coverage and Corporate Environmental Policies

Published online by Cambridge University Press:  22 March 2023

Chenxing Jing ,
Kevin Keasey Open the ORCID record for Kevin Keasey [Opens in a new window] ,
Ivan Lim  and
Bin Xu
Chenxing Jing
Affiliation:
University of International Business and Economics [email protected]
Kevin Keasey*
Affiliation:
Leeds University Business School
Ivan Lim
Affiliation:
Durham University Business School [email protected]
Bin Xu
Affiliation:
Leeds University Business School [email protected]
*
[email protected] (corresponding author)
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Abstract

Exploiting two quasi-natural experiments, we find that firms increase emissions of toxic pollution following decreases in analyst coverage. The effects are stronger for firms with low initial analyst coverage, poor corporate governance, and firms subject to less stringent monitoring by environmental regulators. Decreases in environmental-related questions raised in conference calls, an increased cost of monitoring to institutional shareholders, reductions in pollution abatement investment, and the weakening of internal governance related to environmental performance are channels through which reduced analyst coverage contributes to increases in firm pollution. Our study highlights the monitoring role analysts play in shaping corporate environmental policies.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 34
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank an anonymous referee, Jens Hagendorff, Jarrad Harford (the editor), Costas Lambrinoudakis, Xijing Su (discussant), and the participants of the 2021 Financial Management Association Annual Conference for helpful comments and suggestions.

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