A European perspective on climate change and political tensions and conflicts
本特刊基于2023年米兰研讨会，收录了关于气候变化与政治冲突对欧洲金融市场影响的论文，涵盖董事会结构、卖空禁令、气候风险贷款、ESG评级、地缘政治危机反应、央行公告及能源市场溢出效应等主题。
This special issue of the Journal of Financial Research (JFR) culminates from a symposium held at Bocconi University in Milan, Italy, during the summer of 2023. The main focus of the symposium was on financial topics related to Europe, particularly climate change and political tensions and conflicts as they affect (European) financial markets. The commonality between these two seemingly unrelated topics is that both have recently caused a significant global impact, particularly on European countries. Obviously, part of the reason is proximity, especially in the case of the war in Ukraine. However, the EU has also been more proactive in attempting to modulate the factors contributing to climate change. The symposium co-editors were delighted with the quality of the papers presented, and I hope you will find this subset of those papers of interest. Below is a synopsis of the papers included in this issue. One of two papers in this issue that doesn't address either of the special topics but instead focuses on the more general aspects of European finance examines the impact of board structure on firm performance (“Board structure and market performance: Does one solution fit all?”). Unlike the extant literature that predominantly studies US firms or country-level data for non-US firms, Petrova uses firm-level data from 15 EU countries. Generally, she finds that board size and independent directors are negatively and positively related to returns, respectively. Unexpectedly, the data also reveals that staggered boards are associated with positive market returns. However, the primary takeaway from the paper is that there appear to be some country-specific factors driving board composition. In the second general paper (“Market impacts of the 2020 short-selling bans”), Spolaore and LeMoign study short-selling constraints in Europe during the COVID-19 pandemic. Across the EU, six European National Competent Authority (NCA) joined to implement an exchange-wide ban on short sales. However, the balance of NCAs chose not to impose such bans. This unique natural experiment occurred in the early days of the pandemic, from March 18, 2020, until May 18, 2020. Consistent with prior literature, they find that both liquidity and volume decline significantly. Further, the impact of the ban on the 6 NCA countries persists after lifting the ban. As the world attempts to shift to lower carbon emissions, global compacts such as the Paris Agreement are important and result in policy shifts. However, such shifts and hopefully the resulting reduction in CO2, require that lenders (in particular bank loans) alter their allocation of loans and loan rates. Bruno and Lombini (“Climate transition risk and bank lending”) examine, at the firm-level, whether lenders change their lending practices after the Paris Agreement. They find a positive relation between climate risk and interest rates charged to firms. However, the amount of funding allocated to firms is not clearly based on each firm's climate risk. Shen et al. (“Does environmental investment pay off? – Portfolio analyses of the E in ESG during political conflicts and public health crises”) add evidence to the relation between environmental and financial performance. The primary question is whether improving environmental performance results in increased firm value or whether it simply increases costs. Shen et al.'s results are consistent with the latter. However, during times of crisis, the negative relation disappears. Berk et al. (“New ESG rating drivers in the cross-section of European stock returns”) examine the ESG scores of European stocks and any relation to stock returns. Interestingly, they find an ESG momentum factor that seems to be priced and has little correlation with more traditional equity factors. This result holds for 1-month ESG momentum but falters and becomes inconsistent over longer windows. Most importantly, this suggests that for companies with consistent improvement in their ESG scores, those firm's cost of capital may decrease. Clearly approached from very different perspectives, however this is in contrast to Shen et al.,'s finding that improvement in ESG factors primarily drives up costs. Alam et al. (“Firm reaction to geopolitical crises: Evidence from the Russia-Ukraine conflict”) study the behavior of large-cap firms (S&P500) to the increase of geopolitical risk resulting from Russia's invasion of Ukraine. In particular, they attempt to answer the questions of how, when, and to what degree firms react to such a shift in risk and whether particular firm characteristics may cause a differentiation in their reaction. Of the sample firms, 146 suspend or cease operations in Russia, usually within a relatively short period following the initial invasion. A higher level of cash holdings is the firm characteristic that appears to delineate the decision. In fact, the greater cash holdings, the quicker a firm is to withdraw operations. Another group of these firms make substantial donations, but these decisions appear to have little relation to firm characteristics. Finally, both types of announcements result in a negative stock price reaction. Given that the donation typically is not an ongoing reduction in firm cash flows, it is somewhat surprising. A number of studies have documented the impact of central bank announcements on financial markets. However, these studies typically have focused on the US and also in low volatility markets. Gao et al., in their paper “Can central banks be heard over the sound of gunfire?,” examine the impact of Ukraine's central bank, the National Bank of Ukraine (NBU), on currency markets. Specifically, they find that even during times of great duress, such as the war in Ukraine, announcements made by the NBU indicating the continuance of a fixed FX rate cause an increase in the black market premium (BMP), while announcements more consistent with a floating FX rate lead to a decrease in the BMP. Energy markets connect both subjects of JFR's European symposium. There is no doubt that transitions to a net zero carbon-producing energy sources will decrease reliance on hydrocarbons, and this, too, will likely reduce some of the political tensions in Europe. There is significant research documenting the connection between energy and equity markets in the US. However little is known, though it would be surprising if there weren't such a relation in European markets. In their paper “European equity markets volatility spillover: Destabilizing energy risk is the new normal,” Huszar et al. demonstrate a similar connection between energy and equity markets in Europe. They also find that oil and gas contribute to equity market volatility. In particular, this trend appears to be increasing over time and is strongest in countries with underdeveloped exchanges or a weak domestic currency.