Public Environmental Enforcement and Private Lender Monitoring: Evidence from Environmental Covenants

Transmission Effects of ESG Disclosure Regulations Through Bank Lending Networks

“…Following Choy et al. [2022], I use keywords to search for environmental action covenants to examine whether the bank exerts real pressure on its borrowers to take remedial actions on environmental matters. I then define EnvCovenant as a binary variable indicating whether the loan facility includes at least one environmental action covenant, and LnEnvCovenant as the natural logarithm of one plus the number of environmental action covenants.…”

“…My final sample consists of 3,153 lead bank-loan observations. 21 Following Choy et al [2022], I use keywords to search for environmental action covenants to examine whether the bank exerts real pressure on 18 Because these discussions center on the staggered DiD setting with a binary treatment variable, and each unit is treated at most once during the sample period, it is unclear whether these approaches are applicable to my baseline setting with a continuous treatment variable and a borrower being affected multiple times. Therefore, I apply these approaches to the setting with a binary treatment variable.…”

“…ESG-conscious lenders tend to match up with borrowers sharing similar ESG performance (e.g., Houston and Shan [2022]). In concurrent working papers, Choy et al [2022] show that lenders use environmental covenants to discipline borrowers' environmental performance. Amiram et al [2021] suggest that borrowers can commit to ESG policies by switching to banks that voluntarily adopt the Equator Principles.…”

“…In concurrent working papers, Choy et al. [2022] show that lenders use environmental covenants to discipline borrowers’ environmental performance. Amiram et al.…”

How does demand uncertainty from climate change exposure affect the firms' cost structures? Examining the real effects of climate change on the firms' operational decisions

“…First, we contribute to the research on the effects of climate change. Previous literature has examined the implications of climate-related issues for capital markets (e.g., Bolton & Kacperczyk, 2021;Chava, 2014;Choy et al, 2021;Eccles et al, 2011;Huang et al, 2022;Krueger et al, 2020;Matsumura et al, 2014;Sautner et al, 2022), firm performance (Huang et al, 2018), and disclosures (Downar et al, 2021;Flammer et al, 2021;Reid & Toffel, 2009;Stanny & Ely, 2008).…”