Hong V. Nguyen
Abstract It is no longer a question of whether corporate decisions should be based solely on profit, but rather, a question of the extent to which these decisions also reflect investors’ concerns about the environment and what they imply for the real economy. The research in this paper examines the relation between corporate capital expenditures and environmental performance. It contributes to the empirical literature on environmental sustainability by examining capital investment among the S&P 500 firms. The significant impact of this group of firms on the environment as well as its dominant role in investors’ portfolio allocation decisions makes it a natural choice for studying the question of capital investment in relation to the environment. The evidence presented in this paper indicates that firms with better (worse) environmental performance have a higher (lower) capital investment share. This empirical finding is consistent with a prediction of a model in which investors with green preferences help determine the allocation of investment among firms with different levels of environmental performance. An important economic insight from this research is that market-based capital accumulation is not inconsistent with environmental sustainability.
Keywords Capital expenditures, Environmental performance, Greenhouse gas emissions, Green investors, S&P 500
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