| Summary: | This thesis comprises three chapters on climate and international finance.
Recent pressure on publicly traded (public) firms to divest high greenhouse gas-emitting assets has raised concerns that these assets are flowing to more opaque, privately held (private) firms that may be operating them in more emissions-intensive ways and that sellers are being rewarded for such sales by increased valuations. Whether this is likely to be an important concern depends on the climate and valuation consequences of such asset transfers. These issues are explored in the first two chapters of the thesis.
The first chapter uses data from fossil fuel power plant operations in the United States and employs a difference-in-difference design to estimate the effects of sales on plant emissions outcomes 1998-2022. I find that eighteen months after sale, changes in power plant unit emissions were statistically indistinguishable at the 5% level from zero vis-a-vis comparable plant units that shared technological specifications and were in the same regional electricity area; this was true regardless of whether the buyer was a public or private firm. Then, using data on fossil fuel power plant sale announcements by public firms, I employ an event study methodology to estimate the effect of public-to-private sale announcements on sellers’ market values. I find that, on average, the announcement of a sale to a private firm led to cumulative abnormal returns to the seller’s stock; however, this average was not statistically different from the average return when the announcement was to a public firm.
The second chapter further investigates from a theoretical perspective. I present a general equilibrium model that predicts what will happen to asset ownership and emissions when public, but not private, firms experience a positive shock to their cost of emitting when there is trade in assets. I find three qualitatively distinct equilibria, one of which is a “greenwashing equilibrium.” The public firm expresses the shock entirely through ownership decisions by selling to private firms and assets emit more than they would have if trade were suppressed. There are also equilibria with no trade and divestments of assets to public firms.
The third chapter studies exchange rate determination. I test a set of assumptions that imply the return parity of long-run, real bonds denominated in different currency numeraire. The joint hypothesis is rejected in our post-2009 sample of developing and developed market currencies; however, I document a strong relationship between changes in the log of bilateral, real exchange rate and real holding period bond returns in the direction of parity, contributing to the Meese-Rogoff puzzle on exchange rate determination.
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