Research
Research
Previously circulated under the title ``Talk or Walk the Talk? The Real Impact of ESG Investing.''
Abstract: I propose a model to examine how investors with ESG preferences jointly influence firms' real green investments and greenwashing. Paradoxically, stronger investor ESG preferences may reduce real green investments due to increased greenwashing, which undermines the reliability of ESG information. When this information distortion is severe, firms are disincentivized to make real green investments, as the market-perceived ESG gains are obscured by misinformation, while the financial costs of green investments are still reflected in stock prices. This paradox is most likely when the cost of manipulating ESG information is low, the correlation between ESG and financial fundamentals is weak, and financial information quality is high. Additionally, brown firms with poorer financial performance tend to greenwash more. These findings raise concerns that ESG investing could backfire without effective disclosure regulations. I analyze two practical measures to enhance real impact: diversifying green technology options and linking executive pay to ESG outcomes.
First Place Award at FIASI and Fordham Sustainable Finance Research Competition
with Itay Goldstein
Abstract: We study when divestment is an effective governance mechanism in the presence of investor preference heterogeneity. We develop a model in which firm performance is multidimensional and a blockholder privately observes managerial actions that affect both financial value and a contested dimension valued differently across investors. When the blockholder trades on both dimensions, exit becomes a mixed signal: outside investors rationally assign positive probability to both adverse financial news and values-driven motives, and the resulting price response shapes managerial incentives. The threat of exit disciplines managerial behavior when the financial-news component dominates the market’s inference, but can weaken or reverse incentives when exit is more likely interpreted as relieving the firm from a costly contested action. A key result is that the real effect of divestment on the contested dimension is non-monotonic in blockholder preference intensity: influence is strongest when preferences are balanced and trading motives opaque, and weaker when preferences become extreme and transparent. Our framework generalizes the classic exit model by showing that preference heterogeneity reshapes the informational content of exit and its governance role.
with Ken Deng and Itay Goldstein