Yumeng Gao

Yumeng Gao

PhD Thesis Title : Essays on Sustainable Finance across Asset Classes: Empirical Evidence from China and the US

Supervisor: Professor Andreas Hoepner

External Examiner:
Professor Alexander Bassen
University of Hamburg


This thesis contributes to the growing body of literature on sustainable finance by investigating the financial implications of environmental, social, and governance (ESG) risks and opportunities from the perspective of investors and companies. Utilising novel data from the United States (US) and China, I empirically examine how ESG factors are priced in different financial assets, including options, equities, and bonds, throughout the four main chapters. The first main chapter investigates the upside potential and downside risk of responsible investing that incorporate ESG factors into the investment process and decision-making. By using the option market measures of 46 US financial services companies, I find that financial services companies with highly-rated responsible processes are associated with higher upside potential and lower downside risk; however, I do not observe the same effect for investors who are simply Principles for Responsible Investment (PRI) members.

The second chapter examines the return on investment (ROI) in human resource management (HRM) practices using an economics-based approach. In particular, I attempt to answer whether a firm's investment in HRM activities reduces the cost of bond issuance. Using a sample of 172 Chinese nonfinancial companies, I find that firms with superior employee relations management are associated with approximately 18.79 basis points lower bond issuance spreads, equivalent to an annual saving of RMB 15.25 million (or USD 2.39 million). Furthermore, the estimated ROI in HRM through the channel of financing cost savings is about 1.24% per annum.

Next, I empirically investigate the relationship between corporate environmental performance (CEP) and stock market performance, particularly through the mechanisms of consumer and employee preferences. By using a sample of 629 Chinese nonfinancial companies, I find that firms with superior carbon risk management are associated with higher risk-adjusted returns when there is high consumer demand (i.e., in consumer goods sectors), but an insignificant effect is observed when consumer demand is low (i.e., in non-consumer sectors). Furthermore, I find that employee demand also mediates the corporate environmental and financial performance relationship. The findings suggest that for sectors in which the customer's preference does not play a denominate role in affecting returns (i.e., non-consumer firms), the employee's power is essential in influencing the level of expected returns. The mediating effect of employee preference is particularly significant for firms with more human capital.

Finally, the fourth empirical chapter evaluates the financial performance of impact investors who invest with dual objectives in China. I specifically examine whether environmental impact investing adds value to financial institutions by drawing new inferences from their performance in stock returns. The results indicate that financial companies that proactively incorporate environmental impacts in their due diligence and financing decision-making show higher stock returns than firms that poorly manage their indirect environmental impacts. In other words, institutional investors that pursue impact financing show better stock return performance than those that do not.

Discover our Rankings and Accreditations