Research
Job Market Paper
Resistance and Arbitrage: International Trade in Brown Loans
Yihong Xia Best Paper Award at CICF 2025
I develop a novel measure of carbon sensitivity in lending to assess reductions in portfolio exposure to brown assets. Using syndicated loan data, I show that countries with greater resistance to brown lending, proxied by economic development, experience faster shifts in the sectoral composition of loan portfolios. The decarbonization is driven primarily by domestic credit reallocation. I find consistent evidence of risk transfers to less regulated lenders and foreign countries, indicating arbitrage and incomplete regulations. Furthermore, lenders’ climate risk-taking and transfer behaviors vary sharply by syndicate role, loan type, and specialization. The existence of international trade in brown loans has important implications for supervisory evaluation. Using the European Central Bank’s climate guide, I show that accounting for regulatory leakage reveals effects contrary to common wisdom.
Working Paper
International ownership of brown shares and economic development
with Harald Benink, Harry Huizinga, and Louis Raes. CEPR VoxEU
Using global share ownership data from 2002 to 2021, we provide evidence that a country’s ownership share of carbon-intensive firms declines with its GDP per capita. This effect is primarily driven by investment managers that invest on behalf of others and long-term investors, and it is stronger for larger firms and firms in brown industries. Higher ownership by poorer countries is associated with higher emissions and ESG-related incident frequency. Hence, the ownership transfer of brown firms from high-income to low-income countries can impede these firms’ greening and more generally worsen their ESG performance.
Work in Progress
When ESG information drives control: evidence from M&A deals
We study whether and how ESG information affects the allocation of corporate control using mergers and acquisitions. Conditional on deal occurrence, firms with an ESG information advantage are more likely to acquire control, consistent with higher expected synergy. While existing M&A research primarily emphasizes governance gains, we show that environmental comparative advantage is a major determinant of the M\&A direction. The impact of ESG information on control allocation is amplified in countries with stronger institutional quality and information environments. Additionally, ESG-informed firms are more likely to assume control when markets have rewarded ESG-informed firms that recently undertook M&As. Event-study results reveal asymmetric market perceptions of ESG information for acquirers and targets. The value added of ESG-informed control may also arise from reduced within-deal uncertainty, as stock financing is less likely and less intensive in such deals. Our result that ESG-informed firms are more likely to take control over traded assets implies that used asset trade can serve as a mechanism for reallocating control from less to more environmentally capable firms, facilitating the green transition.