The American Inventors Protection Act: A Natural Experiment on Innovation Disclosure and the Cost of Debt
In this study, Nagihan Mimiroglu, Arvid Hoffmann, Joost Pennings and I examine the impact of innovation disclosure through patenting on firms’ cost of debt, focusing on the American Inventors Protection Act (AIPA) as an exogenous shock in innovation disclosure regulation. Post-AIPA, firms have an incentive to apply for patents only if commercial success is likely. Accordingly, we expect post-AIPA patents to be a better proxy for successful innovation activity, and thus to have a stronger effect on reducing the cost of debt than pre-AIPA patents. Indeed, we find that pre-AIPA patents reduce the cost of debt only for the most innovative firms, while post-AIPA this effect holds for all firms.
In this paper, Itzhak Ben-David (Ohio State University), Michael Viehs (University of Oxford) and I present our latest research on the effects of environmental regulation on firms' carbon emission.
Despite awareness of the detrimental impact of CO2 pollution on the world climate, countries vary widely in how they design and enforce environmental laws. Using novel micro data about firms’ CO2 emissions levels in their home and foreign countries, we document firm behaviour that is in line with the Pollution Haven Hypothesis: Firms headquartered in countries with strict environmental policies perform their polluting activities abroad in countries with relatively weaker policies. These effects are stronger for firms in high-polluting industries and with poor corporate governance characteristics. Although firms export pollution, they nevertheless emit less overall CO2 globally in response to strict environmental policies at home.
Carbon Disclosure, Emission Levels, and the Cost of Debt
In this paper, Michael Viehs (University of Oxford) and I present our latest research on the effect of carbon emission disclosure on corporations' costs of debt.
Using a unique and comprehensive database on carbon emissions from CDP (formerly 'The Carbon Disclosure Project'), we study whether companies which voluntarily participate in the CDP disclusure framework enjoy more favorable lending conditions - in the form of lower spreads on their bank loans - than their non-participating counterparts. Our empirical results reveal a significant and negative relation between disclosing carbon emission levels and the cost of bank loans. Regarding absolute emission levels, we find that firms disclosing relatively more carbon emissions pay higher spreads on their bank loans. These effects are common to all loans and not limited to loans which have been arranged by norms-constrained lenders suggesting that spread premia are driven by environmental risks rather than investor preferences.