Critical Raw Materials, Production Networks, and Pricing
Measuring Critical Raw Material Dependence
Firms can depend on raw materials they do not purchase directly, resulting in material dependence that the market may not observe. We measure this dependence by reconstructing production paths from technical evidence with language-model assistance. In our model, cost-share-weighted paths yield local marginal-cost elasticities to material prices and, under proportional rationing, output elasticities to supply shortfalls. We map dependence on 46 critical raw materials to 22,964 firms in 111 countries. Our measure overlaps with analyst research and corporate disclosures but maps a much broader set of dependencies: 98 analyst reports cover only 1.4% of our mapped material uses, and firms’ 10-K filings disclose 11.7% of measured firm dependencies. We examine how material dependence shapes firms’ operating and valuation responses to trade restrictions across shock types and production stages, and whether selective market attention helps explain how markets recognize and value this exposure.
International Trade in Brown Assets
Resistance and Arbitrage: International Trade in Brown Loans [Draft]
Yihong Xia Best Paper Award, 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.
Who holds brown equity? Economic development, divestment, and environmental outcomes [Draft]
Using global equity-ownership data for 2002–2021 covering 3,559 firms and 111 investor countries, we show that investors in more developed countries hold less carbon-intensive portfolios. This income gradient appears within varying investor types and remains after accounting for return chasing and financial development, consistent with environmental concerns being more strongly reflected in richer-country portfolios. Greater ownership by poorer-country investors predicts higher subsequent emissions and ESG incidents. Exploiting waves of fossil-fuel divestment commitments, we construct a shift-share measure using firms’ predetermined ownership. Rich-country divestment pressure shifts ownership toward poorer countries and worsens environmental performance, reduced-form effects consistent with an ownership channel.
ESG and Corporate Control
Does ESG information shape control? Evidence from takeovers
When two firms combine into one, the allocation of control determines who manages their assets. We study whether ESG information shapes control using 7,914 completed deals announced from 2003 to 2025. We estimate that ESG rating availability increases the rated firm’s predicted probability of taking control by 35-37 percentage points between two otherwise equal firms. Where both firms are rated, control tends to go to the higher-scoring firm, most strongly on the Environmental pillar across borders. The information advantage is larger under strong audit standards and smaller where corporate reporting is widespread. Deal-level announcement returns do not differ significantly across combinations of acquirer and target rating status, but after 2016 a rated target bought by an unrated firm earns less than an unrated target bought by a rated firm.