James Thewissen

The Impact of Environmental Strengths and Concerns on the Accounting Performance of Firms in the Energy Sector

Energy sector firms are highly affected by the imposition of costs and community attitudes related to their environmental impact. In this chapter, we study the impact of environmental strengths and concerns of firms in the energy sector on their firm performance. We aim to uncover whether positive environmental activities add extra costs or help firms in the energy industry achieve a higher future profitability and compare this impact with firms that do not belong to that industry. Based on the environmental scores compiled by Kinder, Lyndenberg and Domini Research and Analytics, Inc., we show that the environmental concerns of U.S. firms in the energy industry are significantly lower than their environmental strengths and this difference is much larger for energy firms than for firms that do not belong to the energy industry. In addition, we find that only the environmental concerns of energy sector firms have predictive value in terms of future corporate performance that is incremental to a group of earnings-predicting variables. Our results for the energy sector indicate that reducing environmental concerns pays off by improving corporate profitability.

The Financial Reward for Environmental Performance in the Energy Sector

This article studies the financial reward for environmental performance of firms in the energy sector. Because of their substantial impact on environment, energy sector firms convey a particular status in the environmental–financial performance question, as compared with firms outside this sector. We use the environmental scores compiled by Kinder, Lyndenberg, and Domini Research and Analytics to construct two portfolios that differ in their environmental performance. We find that, between 2000 and 2011, energy sector firms with good environmental performance financially outperform energy sector firms with poor environmental performance. A portfolio strategy with a long (short) position in energy sector firms with good (poor) environmental performance generates an annual abnormal return of 9.624% after correcting for market, size, book-to-market and momentum risks. For firms outside the energy sector, the performance of the two portfolios is statistically insignificant. Using the VIX index, we also show that the market does not reward environmental performance of energy sector firms in periods of high financial uncertainty.

The Crowding-Out Effect of Green Energy Innovation

The U.S. government annually invests

The Alpha and Beta of Equity Hedge UCITS Funds: Implications for Momentum Investing

700 million in the research and development of green energy. Yet, the question whether corporate research in green energy leads to increased corporate performance remains unanswered. Based on a sample of 130,000 patents granted by 212 U.S. firms between 1975 and 2006, this chapter tests and compares the impact of green and non-green energy innovation on firms’ financial performance and value. While innovation increases firm performance and value, we find that innovation in green energy has a significant and negative impact on future operating performance and reduces firm value. These results suggest that firms crowd out more profitable non-green projects for green innovation, thereby reducing their value and performance. We further find that investors understand this crowding-out effect of green innovation, as the market reacts negatively around and after the granting date of green energy patents.

When corporate social responsibility causes tone inflation in earnings press releases: Evidence from the oil and gas industry

Abstract: Alternative UCITS is a pan-European regulatory framework that allows investment vehicles to be managed and sold throughout Europe. The unified fund structure provides retail investors access to a blend of sophisticated active management strategies subject to high liquidity and transparency constraints, which are ensured by regulatory oversight. The introduction of alternative UCITS funds under the UCITS III Product Directive fits in the so-called “retail alternatives phenomenon”. The client base of alternative investments (apart from long-only allocations to equity and bonds) is increasingly composed of retail investors seeking absolute return investments characterized by low volatility, decorrelation with broad market movements and exposure to alternative risk. Accordingly, the combined effect of strong efforts in investor-favorable regulation when investing in the hedge fund industry and a thematic shift in the mindset of the investor desiring hedge fund-like returns led to a substantial increase in terms of the number of alternative UCITS funds, assets under management (AuM) and market depth. In March 2017, the LuxHedge database reports a UCITS universe of €420 billion AuM across 1,380 funds operating under 16 distinct strategies.

The Green Thumb in the Energy Industry: The Impact of Managerial Political Affiliation on Corporate Environmental Performance

This study focuses on the impact of corporate social responsibility (CSR) on managers’ reporting behavior of qualitative information in the oil and gas industry. Firms in the oil and gas industry have garnered enormous attention from their stakeholders, who place increasing expectations on them to engage in socially responsible investments. However, there is ample evidence that CSR investments addressing broader stakeholder concerns do not necessarily lead to maximization of shareholders’ wealth. Based on 1700 earnings press releases (EPR) issued by the universe of US firms in the oil and gas industry between 2005 and 2014, we show that managers of more socially responsible firms opportunistically inflate the tone of their qualitative disclosures to signal their shareholders that CSR investments are not executed at the expense of their wealth. We also show that the tone of the EPR of socially responsible firms in the oil and gas industry contains less incremental information value to predict future firm performance, which lends considerable support to our assumption that optimistic tone in EPR is used for covering up the poorer accounting performance.

Managers Set the Tone: Equity Incentives and the Tone of Earnings Press Releases

This chapter tests the upper echelons theory of Hambrick and Mason (Acad Manage Rev 9:193–206, 1984) by investigating whether managers’ political party affiliation (liberal or republican) explains the environmental performance of firms in the energy industry. Based on the environmental scores compiled by Kinder, Lyndenberg and Domini Research and Analytics, Inc., we show that the political affiliation of managers in the US between 1996 and 2013 is a key factor in explaining differences in corporate environmental performance. Specifically, firms with Democratic managers have a stronger environmental performance than those with Republican managers. Additionally, while firms with Republican CEOs have lower environmental concerns than those with Democratic CEOs, there is no significant difference in their environmental strengths. These results suggest that the political ideology of the CEO has more impact on abating poor environmental performance than in promoting and enhancing good environmental performance. We conclude that political orientation of managers is a key determinant in the development of corporate environmental strategies in the energy industry.