Title: The Dual Roles of Analysts in Shaping Green Investment Strategies

Authors: Yashu Dong (Shanghai University of Finance and Economics), Siyi He (Sichuan University), Ole-Kristian Hope (University of Toronto), Di Tang (Shanghai University of Finance and Economics)

Abstract: This paper investigates whether and how sell-side financial analysts affect firms’ environmental investment strategies. We show that increased analyst coverage leads firms to reduce spending in the environmental investment channels of abatement expenditures and green innovation. In contrast, analysts are positively associated with green tangible-asset investments and green acquisitions. We attribute the increase in the latter two channels to analysts’ provision of information and the reduction in the first two channels to earnings pressure from analysts. We confirm these effects through textual analysis of analyst reports (separately identifying information and pressure roles) and the construction of specific scenarios (“green analysts” and “beat forecast”). We complement these analyses by examining two shocks - the introduction of high-speed railways and unexpectedly becoming a Star Analyst - and find consistent results. Finally, we find that analysts’ information role enhances pollution-reduction efficiency in the latter two channels.