Corporate Governance, Time Horizons, and the Climate Policy Preferences of Firms

• In Event: Climate Change Politics: The View from Junior Scholars

Abstract

Why do some firms oppose climate change policy while others support it? 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 firms 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 policy costs. Publicly traded firms should be more short-term oriented than privately held firms. Amongst public firms, those that are minority-owned by a diffuse number of shareholders should be the most short-termist. As a consequence, these firms should be the most opposed to climate policies that entail short-term costs for greater long-term benefits. More broadly, we expect that ownership structure drives cross-national variation in climate policy stringency. In liberal market economies, where firms tend to be minority-owned and traded on stock markets, there should be greater business opposition and as a result less stringent policy, than in coordinated market economies, where companies tend be privately- or majority-owned and rely on banks for capital. We test our arguments using newly available data on participation in anti-climate coalitions by US firms between 1990 and 2015 and a measure of firm-level time preferences. Publicly traded firms are more short-term oriented than private firms and more likely to join anti-climate coalitions. Moreover, publicly traded firms with high levels of ownership by investment managers are the most short-termist and the most likely to join anti-climate coalitions.

Authors

• Jared J Finnegan, University College London

• Jonas Meckling, University of California, Berkeley