Working Papers

(* - presented by co-author)

The Surprising Performance of Green Retail Investors: A New (Behavioral) Channel

with Sumit Agarwal, Pulak Ghosh, Hong Zhang, and Jian Zhang

Abstract: Contrary to the prevailing wisdom that green investors willingly accept lower returns for sustainable investment, our analysis of account-level data from a major Indian bank indicates the opposite. We find that investors with a higher proportion of green stocks in their portfolios achieve superior risk-adjusted portfolio returns. To explain this surprising observation, we hypothesize—and empirically verify—that green investments may help investors mitigate detrimental behavioral biases, such as the disposition effect and under-diversification. Alternative mechanisms related to stock selection ability, aggregate demand shocks, and risk mitigation fail to explain green performance. Instead, tests utilizing abnormal temperatures as exogenous shocks support a causal interpretation of our findings. These results suggest a novel behavioral channel for fully understanding the implications of green preferences.

• 2024 SFS Cavalcade Asia-Pacific*, 2024 Australasian Finance and Banking Conference, 2024 SMU Summer Finance Research Camp, 2025 ASU-HKU Interdisciplinary Conference*, 2025 HKU Governance and Sustainability PhD Workshop

Firm Internationalization and Emissions Reduction: International Evidence

with Lingxia Sun, Jongmoo Jay Choi, and Hoje Jo

Abstract: Climate change and environmental challenges are global in nature. One would expect MNCs to exhibit greater alignment with global environmental sustainability than domestic firms, given their exposure to international norms and stakeholder concerns. A counterargument is that MNCs might instead behave opportunistically, engaging in regulatory arbitrage related to emissions reduction by leveraging their global networks. Using a sample of 11,477 unique firms from 63 countries over the period 2002–2022, we find that both the magnitude of carbon emissions and the quality of emissions disclosure are positively associated with firm internationalization. Additionally, U.S.-based MNCs that generate sales in civil law countries and regions tend to disclose more emissions information. Furthermore, the relationship between firm internationalization and emissions reduction is moderated by international environmental institutions, such as the Kyoto Protocol. Finally, we find that MNCs are rewarded by a broader stakeholder community for their efforts in reducing emissions. These results support new institutional theory, suggesting that MNCs’ emissions reductions are perceived as alignment with global environmental norms.

• Revise and Resubmit at the British Accounting Review