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Discussion of Gillan, Hartzell, Koch and Starks

Discussion of Gillan, Hartzell, Koch and Starks. Will Goetzmann. ESG. Corporations serve society Corporations serve taxpayers Fantasy theory: Do well by doing good Managers and shareholders do not know what is good for them. Constraints are for their own benefit.

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Discussion of Gillan, Hartzell, Koch and Starks

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  1. Discussion of Gillan, Hartzell, Koch and Starks Will Goetzmann

  2. ESG • Corporations serve society • Corporations serve taxpayers • Fantasy theory: Do well by doing good • Managers and shareholders do not know what is good for them. • Constraints are for their own benefit. • Exception: governance measures focuses on institutional failure.

  3. Theories About ES not G Emergence • Dumb markets  • Corp as collective conscience  • Executive philanthropy  • Lifestyle marketing to shareholders  • HR benefits, like non-profits 

  4. Alternative Theory: The BP Strategy • Do bad while talking good • Strategy of operating efficiencies • i.e. cut safety corners to improve earnings • Big business/big regulatory target = risk • Advertising campaign: “Green Energy” • Look for past adverse news items • E.G. employee deaths, class action suits, fraud, executive convictions, environmental disasters. • Look for other types of cover-ups • Accruals • Dividend management • Look for advertising campaign to publicize ethics

  5. Executive Philanthropy • Shame Effects • Correlate CEO media exposure to E&S • Salary tradeoff for higher rating • Costly enhancement of social reputation. • CEO values?

  6. Common Value/Private Value Auction • Institutional ownership results • Retail investors more costly • Retail investors less powerful • Stocks as common value goods • CAPM world if no frictions • Stocks as partial private-value goods • Identity definition by stock ownership • Lifestyle clienteles, like product market • Implies ownership concentrations • UK, European, Scandinavian firms must go green • US Green party and share concentration • Republican and Democrat stocks?

  7. Curiosities • Size/ Profitability effects • Compensation neg. rel. ROA • Good ESG scores as a fraction of population • Size (Price) as determinant of scores • Q and size

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