We establish a causal link between carbon emissions and shareholder value using the passage of the Regional Greenhouse Gas Initiative (RGGI) that imposed a cap-and-trade policy for carbon emission on electric utilities in several Northeastern and Mid-Atlantic states. The regulation was successful in significantly bringing down the level of CO2 emission from plants located in the RGGI states compared to unaffected plants. The affected plant's revenue and profitability decreased after the RGGI as they transitioned to cleaner technology. Publicly traded power utility companies in the affected states experienced a drop in their profitability as well. Yet, they had a higher market-to-book ratio after the implementation of the initiative. Increase in value came from an increase in the expected future cash flows of the treated firms and increasing demand of these stocks by institutional funds focused on environmental goals. Our results show that short-term focus on profitability may be a significant impediment to carbon transition.

This paper shows that fossil fuel assets offer valuable opportunities for renewable development, and private equity (PE) firms are better positioned to identify and realize these opportunities. Using the intensity of sunlight received by fossil fuel plants and the passage of investment tax credits, I find that PE firms are more likely to acquire fossil plants that offer exogenously greater solar investment opportunities. PE acquisition is followed by increased solar development in the surrounding area, resulting in a 3-percentage-point higher likelihood of new projects and an 8% increase in solar capacity within five miles of the plant. These results are driven by two mechanisms: (i) PE firms’ operational improvements to fossil fuel plants, such as investments in battery storage facilities, and (ii) their relationships with institutional investors who own and finance solar projects. These findings suggest that regulations prohibiting PE investment in fossil fuels may unintentionally reduce clean energy investment and impede the energy transition. 

This paper studies the effects of creditor rights on bankruptcy outcomes of small businesses. Exploiting the passage of the Small Business Reorganization Act of 2019 as an exogenous shock to the creditor rights in bankruptcy, I show that reducing creditor rights increases Chapter 11 filings by small businesses. Successful reorganization, however, increases only for the firms that have more secured debt and multiple creditors. My findings suggest that (i) secured creditors are more biased towards liquidation and have excess market power in the reorganization process; (ii) in the presence of multiple creditors, secured creditors suffer from coordination failure that makes contract renegotiation more difficult.