Concerns about Empirical Corporate Finance: Sustainability or Greenwashing Revisited

Abstract

Avanidhar Subrahmanyam

Inconsistent standards prevail in the evaluation of empirical corporate finance papers, leading to confusion in interpreting results. I demonstrate this point using an example: Duchin, Gao, and Xu (2025) propose that firms under environmental pressure (EP) via ESG ratings, pension fund ownership, or being headquartered in a Democrat county, for example, are more likely to divest polluting plants. They attribute this to “greenwashing” rather than sustainability. I show that reasonable adjustments to their specifications make the results inconclusive. Thus, their data do not allow one to infer that environmental pressures in fact cause divestiture.

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