Questions in Finance

Do Woke Firms Go Broke? Part 2

Do Woke Firms Go Broke? Part 2
 
In this episode of 'Questions in Finance,' university professors Kate Holland and Veljko Fotak delve into the 'S' (social) aspect of ESG (Environmental, Social, and Governance) in corporate social responsibility. They discuss the concept of 'double bottom line' companies that care about both operating profits and social responsibility, highlighting various facets of social responsibility including gender equality, parental leave policies, and worker safety. The hosts review academic studies on these topics, explore the impact of corporate scandals on reputation and valuation, and debate the performance of anti-woke funds. The episode concludes with a hopeful message that socially responsible firms do not underperform, illustrating that firms can be good corporate citizens without sacrificing profitability.
 
 
 
Timeline:
 
00:00 Do Double-Bottom-Line Firms Bottom Out?
01:36 Welcome
02:14 Defining "Social"
03:18 Labor-Friendly Policies, Equity, and Firm Value
09:58 Causality and the Maslow-Fotak-Holland Hierarchy of Corporate Needs
25:33 Corporate Scandals and Social Reputation
31:54 The Cost of Murder
44:42 Anti-Woke Funds
53:43 Not all Customers and Investors are Alike
57:54 Wrapping Up - A Note of Optimism
 
 
 
Bibliography:
 
Ahern, Kenneth R., and Amy K. Dittmar. "The changing of the boards: The impact on firm valuation of mandated female board representation." The Quarterly Journal of Economics 127, no. 1 (2012): 137-197.
 
Cohn, Jonathan, B. and Malcom I. Wardlaw. "Financing constraints and workplace safety." The Journal of Finance 71, no. 5 (2016); 2017-2058.
 
Eckbo, B. Espen, Knut Nygaard, and Karin S. Thorburn. "Valuation effects of Norway’s board gender-quota law revisited." Management Science 68, no. 6 (2022): 4112-4134.
 
Edmans, Alex. "The link between job satisfaction and firm value, with implications for corporate social responsibility." Academy of Management Perspectives 26, no. 4 (2012): 1-19.
 
Fauver, Larry, Michael B. McDonald, and Alvaro G. Taboada. "Does it pay to treat employees well? International evidence on the value of employee-friendly culture." Journal of Corporate Finance 50 (2018): 84-108.
 
Fotak, Veljko, Kateryna Holland, Vishal Sharma. "The cost of murder: Shareholder response to a social reputation shock." Working Paper.
 
Friede, Gunnar, Timo Busch, and Alexander Bassen. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies." Journal of Sustainable Finance & Investment 5, no. 4 (2015): 210-233.
 
Knittel, Christopher R., and Victor Stango. "Celebrity endorsements, firm value, and reputation risk: Evidence from the Tiger Woods scandal." Management Science 60, no. 1 (2014): 21-37.
 
Gertsberg, Marina, Johanna Mollerstrom, and Michaela Pagel. "Gender quotas and support for women in board elections." Working Paper.
 
Lins, Karl V., Lukas Roth, Henri Servaes, and Ann Tamayo. "Sexism, culture, and firm value: Evidence from the Harvey Weinstein scandal and the #MeToo movement." Journal of Accounting Research, (2024), forthcoming
 
Liu, Tim, Christos Makridis, Paige Ouimet, and Elena Simintzi. "The distribution of non-wage benefits: Maternity benefits and gender diversity." Review of Financial Studies, 36, (2023): 194-234.
 
Sonnenfeld, Jeffrey, Steven Tian, Steven Zaslavsky, Yash Bhansali, and Ryan Vakil. "It pays for companies to leave Russia." Working Paper.
 
 
 
Online Sources and Media:
 
Amrith Ramkumar, Amit (2022), "Anti-ESG activist investor urges Chevron to increase oil production, Wall Street Journal, September 6, 2022."
https://www.wsj.com/articles/anti-esg-activist-investor-urges-chevron-to-increase-oil-production-11662494769
 
Rajogpal, Shivaram, "Does The Anti-Woke MAGA ETF Inadvertently Make The Case For ESG?" Forbes, October 3, 2022.
https://www.forbes.com/sites/shivaramrajgopal/2022/10/03/does-the-anti-woke-maga-etf-inadvertently-make-the-case-for-esg/
 
 
 
Soundtrack:
 
The soundtrack is based on "Walk on a Funky Street" by MondayHopes. Thanks for the music and keep up the good work! Use is under the Pixabay Content License.

Do Woke Firms Go Broke? Part 1

Do Woke Firms Go Broke? Part 1
 
In this episode of 'Questions in Finance,' university professors Kate Holland and Veljko Fotak explore the intersection of corporate profitability and social responsibility. They examine whether companies prioritizing ESG (Environmental, Social, and Governance) or CSR (Corporate Social Responsibility) practices can also deliver strong financial returns. Using historical financial perspectives and empirical evidence, they analyze corporate earnings, stock returns, and the effects of governance on firm performance. The episode delves into various aspects of ESG, including environmental impact and 'greenium'—the premium returns of environmentally conscious firms—highlighting the positive correlation between good ESG practices and financial success. Featuring studies and case examples, this comprehensive discussion addresses the financial and ethical dynamics of socially responsible investing in modern markets.
 
 
Timeline:
 
00:00 Introduction and Allbirds
03:42 Exploring the Concept of 'Woke' Firms
08:30 A Narrow View of Corporate Performance
14:05 Governance and Its Impact on Returns
21:13 Environmental Policies and Firm Returns
27:19 Correlation vs. Causation in ESG Performance
28:45 Historical Context of ESG Concerns
30:24 Back from Break: Discussing Corporate Responsibility
35:52 Green Firms in Brown Industries
44:31 Summarizing ESG Performance
45:49 Wrapping Up and Looking Ahead
 
 
Bibliography:
 
Bolton, Patrick, and Marcin Kacperczyk. "Do investors care about carbon risk?." Journal of Financial Economics 142, no. 2 (2021): 517-549.
 
Chan, Pak To, and Terry Walter. "Investment performance of “environmentally-friendly” firms and their initial public offers and seasoned equity offers." Journal of Banking & Finance 44 (2014): 177-188.
 
Griffin, Dale, Omrane Guedhami, Kai Li, and Guangli Lu. "National culture and the value implications of corporate environmental and social performance." Journal of Corporate Finance 71 (2021): 102123.
 
Derwall, Jeroen, Nadja Guenster, Rob Bauer, and Kees Koedijk. "The eco-efficiency premium puzzle." Financial Analysts Journal 61, no. 2 (2005): 51-63.
 
Friede, Gunnar, Timo Busch, and Alexander Bassen. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies." Journal of Sustainable Finance & Investment 5, no. 4 (2015): 210-233.
 
Gompers, Paul, Joy Ishii, and Andrew Metrick. "Corporate governance and equity prices." The Quarterly Journal of Economics 118, no. 1 (2003): 107-156.
 
Houston, Joel F., Sehoon Kim, and Boyuan Li. "One Hundred and Thirty Years of Corporate Responsibility." Working Paper (2024).
 
Pastor, Lubos, Robert F. Stambaugh, and Lucian A. Taylor. "Dissecting green returns." Journal of Financial Economics 146, no. 2 (2022): 403-424.
 
 
Soundtrack:
 
The soundtrack is based on "Walk on a Funky Street" by MondayHopes. Thanks for the music and keep up the good work! Use is under the Pixabay Content License.
 

The Presidential Puzzle: Does the US Economy Perform Better under Democrat or Republican Presidents?

The Presidential Puzzle: Does the US Economy Perform Better under Democrat or Republican Presidents?
In this episode of 'Questions in Finance,' university professors Kate Holland and Veljko Fotak dive into an intriguing economic puzzle: why does public opinion favor Republicans as better managers of the economy, while macroeconomic indicators, corporate performance, and stock market returns generally show better outcomes under Democrat presidencies? And what explains some of the gap in performance?
The discussion, grounded in academic research, explores various metrics, at the macroeconomic, firm, and market levels and the strength and robustness of findings.
Kate and Veljko delve into common explanations, debunk the flawed ones, and emphasize the role of risk-aversion cycles and the timing of the Korean war and crude-oil shocks as having favored Democrat presidencies.
The episode concludes with an exploration of party identity and political polarization, touching on the complex factors influencing electoral success and public perceptions.
 
Timeline:
00:00 Introduction and Personal Anecdotes
01:17 Questions in Finance Podcast Introduction
02:08 Economic Performance Under Different Presidents
02:46 Public Perception vs. Economic Reality
05:04 The Presidential Puzzle
09:52 Diving into the Evidence
18:35 Corporate Performance Analysis
36:35 Exploring Explanations for Economic Trends
37:05 Cherry-Picking Time Periods: Valid or Not?
40:52 Impact of Crude Oil Shocks and the Korean War
43:51 Inherited Economic Conditions and Lead-Lag Effects
45:48 Risk Cycles and Economic Performance
50:36 Policy Explanations: Congress and Corporate Outcomes
59:34 Behavioral Explanations: Over-Optimism and Euphoria
01:03:20 Summarizing the Presidential Puzzle
01:06:06 Republican Electoral Success Despite Economic Trends
01:10:04 Party Identity and Political Polarization
01:11:45 Conclusion and Future Topics
 
 
Bibliography:
Alesina, Alberto and Howard Rosenthal. "Partisan politics, divided government, and the economy." Cambridge University Pres, 1995.
Alesina, Alberto, Nouriel Roubini, and  Gerald D. Cohen. "Political cycles and the macroeconomy." MIT Press, 1997.
Belo, Frederico, Vito D. Gala, and Jun Li. "Government spending, political cycles, and the cross section of stock returns." Journal of Financial Economics 107, no. 2 (2013): 305-324.
Blinder, Alan S., and Mark W. Watson. "Presidents and the US economy: An econometric exploration." American Economic Review 106, no. 4 (2016): 1015-1045.
Holland, Kateryna, and Esther Im. "Corporate Cash Flow Outcomes Across Presidencies: Still a Presidential Puzzle." Working paper.
Mian, Atif, Amir Sufi, and Nasim Khoshkhou. "Partisan bias, economic expectations, and household spending." Review of Economics and Statistics 105, no. 3 (2023): 493-510.
Potrafke, Niklas. "Government ideology and economic policy-making in the United States—a survey." Public Choice 174 (2018): 145-207.
Santa‐Clara, Pedro, and Rossen Valkanov. "The presidential puzzle: Political cycles and the stock market." The Journal of Finance 58, no. 5 (2003): 1841-1872.
Snowberg, Erik, Justin Wolfers, and Eric Zitzewitz. "Partisan impacts on the economy: evidence from prediction markets and close elections." The Quarterly Journal of Economics 122, no. 2 (2007): 807-829.
 
Online Sources:
EPI Report: https://epiaction.org/2024/04/02/economic-performance-is-stronger-when-democrats-hold-the-white-house/#full-report
Belfer Center Study: https://www.belfercenter.org/publication/historical-puzzle-us-economic-performance-under-democrats-vs-republicans
 
Soundtrack:
The soundtrack is based on "Walk on a Funky Street" by MondayHopes. Thanks for the music and keep up the good work! Use is under the Pixabay Content License.