Economic Analyses of Business Decisions, Environmental Sustainability, and Policies
This dissertation investigates the interactions among business decisions, the environment outcomes of such decisions, and environmental policies. In three essays, I address two topics regarding decisions by industrial firms and agricultural producers and the environment. The first two essays are concerned with environmental self-regulation of public firms, in which I explore the potential for financial incentives to motivate voluntary environmental abatement in the short run and the long run. In the third essay, I investigate the impact of energy policies on agricultural producers' planting decisions. The first essay addresses the financial incentives driving firm disclosure of positive environmental information and the link to environmental outcomes. I classify positive environmental disclosure by informational content, and find that forward-looking announcements and recognition by a third party bear the largest financial incentives, though only the latter has a discernible link to environmental outcomes. Beyond valuing firm financials, the stock market values firm social, environmental, and corporate governance performance as a whole. The results identify third-party recognition as a channel through which environmental information may induce self-regulation. The second essay investigates the long-term financial incentives of corporate environmental responsibility by examining whether an environmentally responsible firm benefits from a lower cost of equity capital, focusing on a particular channel: sustainable and responsible investing (SRI). Using treatment effect models, I test whether investments from SRI mutual funds with environmental screening criteria impact firm cost of equity capital. The results indicate that accounting for interactions between firms and non-shareholder stakeholders and potential agency costs associated with certain environmentally responsible activities of the firm, SRI investing can facilitate the alignment of firms' environmental and financial goals. In the third essay I assess corn planting decisions of agricultural producers in response to the increased spatial competition among ethanol plants in the Midwestern United States, following the energy policies that mandate the use of renewable fuels. I develop a spatial competition model which yields an index of spatial competition that incorporates determinants of local corn prices: the number of plants, distance between competing plants, and production capacity in local ethanol markets, considering three types of market structures: monopsony, duopsony, and oligopsony. I find that a change in the distance between two competing ethanol plants, a plant's own capacity, and a competitor's capacity all influence a plant's intensity of spatial competition. Econometric analyses further show that the intensity of spatial competition has a positive and significant effect on corn production.
Wang, Purdue University.
Environmental economics|Agricultural economics|Finance
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