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
The ESG Factor in Cross-Border M&A: Parent Choices, Market Reactions, and the Path to Better Outcomes
In this paper, I study the parent-subsidiary structure determination and market responses behind international mergers between firms with differentials in their Environmental, Social, and Governance (ESG) capacities. The cumulative abnormal returns in response to the M&A announcements between two firms with ESG differentials are higher for the deal with a greener acquirer, suggesting that the market holds an asymmetric belief on the potential impact of M&A on the future ESG performance. Consistent with the hypothesis that firms exploit this asymmetric belief and deliberately design the deal direction, both ESG disclosure practices and the actual emission levels impact the direction choice of an M&A deal. However, the ex-post ESG evaluation of the merged firm always fails the ex-ante expectation. Acquiring a relatively green firm does not proportionately improve the post-merger ESG rating or emission performance of the acquirer, and acquiring a brown firm does not, in fact, shock the host firm’s ESG evaluation as negatively as how much the market would demand compensation for.