Corporate Ownership, Short-Termism, and Climate Policy Preferences

• In Event: Mini-Conference on Politics in Post-industrial Societies II: Climate Scepticism and Changing Cleavages of Climate Politics

Abstract

Government efforts to address long-term policy challenges often entail that business bear short-term costs today for greater long-term benefits. What explains firms’ preferences in the context of such policies? Existing research emphasizes the role of costs. However, we theorize that institutions are a key mediating variable that shape the way that firms perceive such costs. The ownership structure of a firm shapes the extent to which managers are focused on short-term profitability over long-term business and social goals, and therefore how resistant they are to short-term policy costs. Because they are exposed to capital market pressures to meet quarterly profit expectation, publicly-traded firms should be more short-term oriented than privately-owned firms. Amongst traded companies, those that are owned by impatient investors should be more opposed to long-term policies than those with patient owners. We test our arguments in the US in the context of one important long-term policy area: climate change. Using an original measure of firms’ opposition to climate policy based on firms' political contributions to Republicans, we show that publicly-traded companies are more likely to oppose climate policy than private ones. In addition, publicly-traded firms with high levels of ownership by impatient investors oppose climate policy more. More broadly, we show that ownership structure drives variation in climate policy stringency across countries. Where firms access finance primarily through stock markets, policy is less stringent than in countries where firms tend to be privately owned and rely on patient capital from banks. The theory and findings help to explain why business in countries like the US has been so intensely opposed to long-term policies to address climate change.

Authors

• Jared J Finnegan, University College London

• Jonas Meckling, University of California, Berkeley

• Jared J Finnegan, University College London