Working Papers
(* indicates presentation by coauthor)
[1] "CEO compensation and adverse shocks: Evidence from changes in environmental regulations" (with Seungho Choi, Ross Levine, and Raphael Jonghyeon Park) [NBER Working Paper No. w32663]
Awards: Best Paper Award (ESG), Southwestern Finance Association Annual Meeting (2024), Korea Financial Investment Association Best Paper Award, Joint Conference with the Allied Korea Finance Associations (2024), KDB (Korea Development Bank) Best Paper Award, CAFM (2023), Best Paper Award, Financial Information Society of Korea (2023)
Media coverage: Harvard Law School Forum on Corporate Governance
Presentations (includes scheduled and invited): ICGS Annual Conference (ASU) (2024), SFS Cavalcade North America (2024)*, APAD Annual Conference (2024)*, SWFA Annual Meeting (2024)*, Hanyang University (2023)*, BAR Annual Conference (Harvard) (2023), Haskell & White Academic Conference (2023), Boca Corporate Finance and Governance Conference (2023)*, CAFM (2023)*, Financial Information Society of Korea (2023)*, AFBC (2023)
Abstract. Although corporate finance theory suggests how adverse shocks influence shareholder preferences toward corporate risk-taking and executive compensation, few researchers explore this relationship empirically. We construct a firm-year measure of unexpected shocks to environmental regulatory stringency. We find that adverse environmental regulatory shocks typically prompt corporate boards to reduce the risk-taking incentives of CEO compensation. However, this pattern is not uniform. Financially distressed firms exhibit milder reductions in compensation convexity, with some even increasing it, suggesting a "gambling for resurrection" strategy. Moreover, the strength of corporate governance influences shareholders' capacity to align executive incentives with changing shareholder risk preferences.
[2] "Environmental regulation, pollution, and shareholder wealth" (with Seungho Choi, Ross Levine, and Raphael Jonghyeon Park) [pdf]
Awards: Semi-finalist of Best Paper Award for Corporate Finance, FMA Annual Meeting (2022)
Presentations (includes scheduled and invited): AFA (2025), Stanford University (2024)*, Loyola Financial Ethics Conference (2024), CICF (2023), SWFA Annual Meeting (2023), FMCG (2023), SFS Cavalcade Asia-Pacific (2022), CEPR Endless Summer Conference (2022), Conference on CSR, the Economy and Financial Markets (2022), FMA Annual Meeting (2022)*, FIRN Corporate Finance Meeting (2022)*, Boca Corporate Finance and Governance Conference (2022)*, Frontiers of Factor Investing Conference (2022), ICEF-CInSt International Finance Conference (2022)*, CAFM (2022)*, APAD Annual Conference (2022)*, AsianFA Annual Conference (2022), UC Berkeley Haas School of Business Finance Seminar (2021)
Abstract. This paper investigates the stock market's reaction to changes in the interaction between local environmental regulations and a firm's polluting behavior. Our identification strategy uses county-level noncompliance designations induced by discrete policy changes in the National Ambient Air Quality Standards as a source of exogenous variation in local regulatory stringency. On average, the market responds positively to firms exposed to noncompliance designations compared to non-exposed firms. In the cross-section, firms' value initially increases with noncompliance exposure but declines at higher levels. Examining the mechanisms reveals that this nonlinear variation arises from the offsetting effects of noncompliance exposure on incumbent firms, encompassing a tradeoff between the benefits of competitive advantages and the costs of regulatory compliance. Furthermore, short-term market reactions to noncompliance designations are consistent with their long-term effects on firms' accounting performance. Overall, the evidence suggests that the stock market internalizes the perceived benefits and costs of local environmental regulation.
[3] "Environmental regulatory risks, firm pollution, and mutual funds' portfolio choices" (with Seungho Choi and Raphael Jonghyeon Park) [pdf]
Awards: Runner-up, 3rd Annual FIASI-Gabelli School Student Research Competition on ESG (2023), Best Paper Award, FMCG PhD Symposium (2023), Best Paper Award, Melbourne Asset Pricing Meeting (2022), Best Paper Award, Ivey-ARCS PhD Sustainability Academy (2022), Semi-finalist of Best Paper Award for Investments, FMA Annual Meeting (2022), Inquire Europe Travel Grant (2023), European Finance Association Travel Grant (2022), American Finance Association Travel Grant (2022), OFR PhD Symposium Travel Grant (2022)
Media coverage: NBS, B The Change
Selected presentations (includes scheduled and invited): SFS Cavalcade Asia-Pacific (2024)*, FMA Asia/Pacific Conference (2024)*, APAD Annual Conference (2024)*, Fordham University JAAF Symposium (2023), FIRN Asset Management Meeting (2023)*, Tongji Finance Symposium (2023), CEIBS Finance and Accounting Symposium (2023), SGF Conference (2023), Inquire Europe Joint Spring Seminar (2023), Georgia Tech Scheller College of Business Finance Seminar (2023), EasternFA Annual Meeting (2023), MFA Annual Meeting (2023), JAAF ISB Symposium (2023), SWFA Annual Meeting (2023), Annual Hedge Fund Research Conference (Poster) (2023), FMCG PhD Symposium (2023), ARCS Annual Research Conference PhD Workshop (2023), AFFI PhD Workshop (2023), AsianFA Annual Conference (2023), EuropeanFA Annual Meeting (2022), CICF (2022), Yale Initiative on Sustainable Finance Annual Symposium (2022), OFR PhD Symposium (2022), AFBC PhD Forum (2022), FMA Doctoral Student Consortium (2022), LBS Trans-Atlantic Doctoral Conference (2022), CAFM Doctoral Student Consortium (2022), Ivey-ARCS PhD Sustainability Academy (2022), CEMLA/Dallas Fed Financial Stability Workshop (2022), GRETA CREDIT (2022), Melbourne Asset Pricing Meeting (2022), EBA Policy Research Workshop on Technological Innovation, Climate Finance and Banking Supervision (2022), Conference on CSR, the Economy and Financial Markets (2022), FMA Annual Meeting (2022), New Zealand Finance Meeting (2022), SouthernFA Annual Meeting (2022), GRASFI (2022), Frontiers of Factor Investing Conference (2022), UC Berkeley Haas School of Business Finance Seminar (2022), UC Berkeley Financial Economics Seminar (2022)
Abstract. This paper examines how mutual funds' portfolio holdings respond to environmental regulations. Using county-level ozone nonattainment designations induced by discrete policy changes in the National Ambient Air Quality Standards as a source of exogenous variation in local regulatory stringency, we find that funds underweight (overweight) those polluting stocks whose cash flows covary negatively (positively) with the regulatory shock. Our results are consistent with active portfolio rebalancing in response to expected changes in firm fundamentals due to negative cash flow shocks stemming from the costs of nonattainment regulation. Further analyses in the post-nonattainment period show that stocks with high exposure to nonattainment designations exhibit worse operating performance and increased regulatory compliance costs. The most underweighted of such firms also exhibit worse abnormal stock return performance. Funds that reduce their portfolio exposure to nonattainment designations see an improvement in their investment performance.
[4] "Every emission you create—every dollar you'll donate: The effect of regulation-induced pollution on corporate philanthropy" (with Seungho Choi and Raphael Jonghyeon Park) [pdf]
Awards: Best Paper Award (General), Southwestern Finance Association Annual Meeting (2023), WRDS Best Empirical Finance Paper Award, New Zealand Finance Meeting (2022), Samsung Securities Best Paper Award, CAFM (2022), Best Paper Award in Green Finance, Asia Conference on Business and Economic Studies (2022), Best Paper Award in Sustainability, Conference on Behavioral Research in Finance, Governance and Accounting (2022), KDI Frontiers in Development Policy Conference Grant (2022)
Selected presentations (includes scheduled and invited): Deakin University Accounting Research Conference (2024)*, SFS Cavalcade North America (2023), ARCS Seminar Series (2023), Nanyang Business School Accounting Conference (2023), UMass Boston Conference on Corporate Social Responsibility (2023), Swiss Accounting Research Alpine Camp (2023), FIRN Annual Conference (2023)*, FIRN Corporate Finance Meeting (2023)*, ARCS Annual Research Conference (2023), EasternFA Annual Meeting (2023), MFA Annual Meeting (2023), SWFA Annual Meeting (2023), FMA Annual Meeting (2023), JAAF Conference (2023), FMCG (2023), AsianFA Annual Conference (2023), APAD Annual Conference (2023)*, IWH-FIN-FIRE Workshop (2022), Haskell & White Academic Conference (2022), KDI Frontiers in Development Policy Conference (2022), University of Sydney Business Financing and Banking Research Group Annual Workshop (2022)*, Frontiers of Factor Investing Conference (2022), AFBC (2022)*, New Zealand Finance Meeting (2022)*, CAFM (2022)*, UC Berkeley Financial Economics Seminar (2022)
Abstract. We investigate the insurance-motives of polluting firms' charitable giving by analyzing donations from philanthropic foundations to local nonprofits. Employing the National Ambient Air Quality Standards as localized exogenous shocks to pollution in a regression discontinuity framework, we document that firms with greater local pollution donate more to local nonprofits. This effect is amplified for firms that derive more insurance value from donations. Our results are not driven by a substitution between pollution abatement and charitable activities. Overall, the evidence suggests that firms leverage their reputation in local communities through corporate philanthropy as a form of insurance.
[5] "Catalysts for climate solutions: Corporate responses to venture capital financing of climate-tech startups" (with Shirley Lu and George Serafeim)
Presentations (includes scheduled and invited): Yale Initiative on Sustainable Finance Annual Symposium (2024)*, Oxford Sustainable Private Markets Conference (2024), CICF (2024)*, GRASFI (2024), CEMA (2024), Adam Smith ESG Conference (2024), Shanghai-Edinburgh-London-Cape Town Green Finance and Accounting Conference (2024), NUS Business School (2024)*, Columbia Junior Accounting Conference (2024)*, Harvard Business School (2023)
Abstract. We study whether incumbent firms increase their product focus on climate solutions in response to venture capital (VC) financing of climate-tech startups. Using large language models to measure a firm's focus on climate solutions, we find that incumbents in similar product markets as VC-backed startups increase their product focus on climate solutions. Consistent with VC investment serving as a signal for the commercial potential of climate solutions, the increase is more pronounced when the VC investment demonstrates more promising commercial prospects and has higher visibility. Additionally, incumbents with a pre-existing focus on climate solutions are more likely to respond, and their stock prices respond positively in anticipation of future benefits from the commercial potential of climate solutions. Overall, the results suggest that VC financing of climate-tech startups serves as a signal of the commercial potential for climate technologies, thereby catalyzing incumbents' investments in climate solutions.
[6] "Climate solutions, transition risk, and stock returns" (with Shirley Lu, Edward Riedl, and George Serafeim)
Presentations (includes scheduled and invited): CPA Manitoba-Asper School of Business Accounting Research Conference (2024), Haskell & White Academic Conference (2024)*, Harvard Business School (2024)
Abstract. Using large language models to measure a firm's development and deployment of climate solution products and services, we find that firms with more climate solutions exhibit lower stock returns and higher market valuation multiples. We also document that stock prices of high-climate solution firms react more positively (negatively) to climate-related events that signal increased (decreased) future demand for climate solutions. Furthermore, high-climate solution firms exhibit higher future profitability during periods of high environmental regulatory uncertainty, unexpected increases in climate change concerns, and when they have a larger share of their sales in states with climate plans and stronger public support for addressing climate change. Finally, we find that the lower stock returns among high-climate solution firms are more pronounced for those also having a low carbon footprint. Overall, our results indicate that high-climate solution firms, whose business benefits as climate transition risks materialize, hedge investors against such risks.
[7] "Tracking business opportunities for climate solutions using AI in regulated accounting reports" (with MarcAntonio Awada, Shirley Lu, and George Serafeim)
Presentations (includes scheduled and invited): Harvard Business School (2024)
Abstract. Climate change offers substantial business opportunities that require a distinct analytical approach, separate from the risk-oriented perspective highlighted in existing literature. We utilize advancements in large language models to identify and monitor companies that are developing or deploying technologies aimed at reducing carbon emissions (hereafter referred to as climate solutions). Analyzing over 39,710 10-K filings from 4,483 U.S. public firms between 2005 and 2022, we uncover an increase in the discussion of climate solutions within business descriptions in regulated filings. This trend has accelerated in recent years, particularly following the Inflation Reduction Act. Our findings indicate that firms incorporating climate solutions into their product portfolios experience higher revenue growth and investment. Additionally, topic analysis reveals a focus on climate solutions with greater abatement potential or lower costs. Overall, our study demonstrates that leveraging AI to analyze business descriptions in regulatory filings can yield valuable insights into climate-related business opportunities.