Outsourcing Climate Change

50 Pages Posted: 13 Jan 2021 Last revised: 13 May 2021

See all articles by Rui Dai

Rui Dai

Wharton Research Data Services (WRDS)

Rui Duan

York University - Schulich School of Business

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Date Written: January 7, 2021

Abstract

This paper exploits newly available information on firms' direct (own production) and indirect (supplier-generated) carbon emission intensities and transaction-level imports to conduct an in-depth analysis of whether and how U.S. firms address climate change. We find robust evidence that U.S. firms' imports amplify the substitutional relationship between their direct and indirect carbon emissions, suggesting that these firms outsource part of their pollution to suppliers overseas. Our key evidence is further substantiated by quasi-natural experiments associated with demand and supply shocks to emissions. We also show that firms, management, and directors with desires to maintain high environmental standings and environmentally-conscious customers and investors play a role in corporate environmental policies. Finally, firms with more imported emissions tend to have higher reputational risks and larger future stock returns but are less incentivized to develop clean technologies.

Keywords: Outsourcing, Emissions, Import, Pricing and Welfare Implications

JEL Classification: G23, G30, G34, M14

Suggested Citation

Dai, Rui and Duan, Rui and Liang, Hao and Ng, Lilian, Outsourcing Climate Change (January 7, 2021). European Corporate Governance Institute – Finance Working Paper No. 723/2021, Available at SSRN: https://ssrn.com/abstract=3765485 or http://dx.doi.org/10.2139/ssrn.3765485

Rui Dai

Wharton Research Data Services (WRDS) ( email )

3819 Chestnut St
Suite 300
Philadelphia, PA PA 19104
United States

Rui Duan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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