Imperial College London

ProfessorPatrickBolton

Business School

Professor of Finance and Economics
 
 
 
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Contact

 

p.bolton

 
 
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Location

 

Business School BuildingSouth Kensington Campus

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Summary

 

Publications

Publication Type
Year
to

49 results found

Bolton P, Kacperczyk M, 2023, Global pricing of carbon-transition risk, The Journal of Finance, Vol: 78, Pages: 3677-3754, ISSN: 0022-1082

The energy transition away from fossil fuels exposes companies to carbon-transition risk. Estimating the market-based premium associated with carbon-transition risk in a cross section of 14,400 firms in 77 countries, we find higher stock returns associated with higher levels and growth rates of carbon emissions in all sectors and most countries. Carbon premia related to emissions growth are greater for firms located in countries with lower economic development, larger energy sectors, and less inclusive political systems. Premia related to emission levels are higher in countries with stricter domestic climate policies. The latter have increased with investor awareness about climate change risk.

Journal article

Bolton P, Kacperczyk M, 2023, Are carbon emissions associated with stock returns? Comment, Review of Finance, ISSN: 1382-6662

Journal article

Bolton P, Jiang W, Kartasheva A, 2023, The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation, JOURNAL OF APPLIED CORPORATE FINANCE, Vol: 35, Pages: 66-74, ISSN: 1078-1196

Journal article

Bolton P, Buchheit LC, di Mauro BW, Panizza U, Gulati Met al., 2022, Environmental protection and sovereign debt restructuring, CAPITAL MARKETS LAW JOURNAL, Vol: 17, Pages: 307-316, ISSN: 1750-7219

Journal article

Bolton P, Halem Z, Kacperczyk M, 2022, The financial cost of carbon, Journal of Applied Corporate Finance, Vol: 34, Pages: 17-29, ISSN: 1078-1196

Climate finance is first and foremost a risk-management problem, which means three things for investors. First, prudent investors will seek to hedge climate change risk by reducing their exposure to this risk. Second, investors will demand compensation for holding this risk. Third, investors will engage with companies to urge them to reduce this risk if they are not adequately compensated for it.For companies, the main implication of climate-risk management by investors is that the companies with greater carbon emissions will have to pay a higher financial cost of carbon (FCC). In their new study described in this article, the authors undertake a comprehensive analysis of the risk compensation implications of exposing investors to carbon transition risk. They explore how corporate GHG emissions have affected the price-to-earnings (P/E) ratios of listed companies in Europe and the U.S. over the period 2016 to 2020. Their main finding is that financial markets are beginning to broadly discount companies whose high carbon emissions are viewed as subjecting them to higher levels of political and regulatory risk, and providing them with what amounts to a higher cost of capital.Although price-earnings ratios are generally lower for companies with higher emissions, the discount varies significantly by sector and across firm size, with larger companies experiencing the larger discounts. Although the carbon discount is similar in the U.S. and in Europe, the authors find significantly higher discounts in industries in Europe that are directly covered by carbon pricing through the EU ETS. They even find a small price discount on corporate debt for smaller issuers. Overall, what emerges is a clear pattern of investors' growing concern over climate risk, which translates into an increasingly material FCC for companies with high GHG emissions. This growing valuation discount for companies with high emissions should encourage them to progress further along their decarbonization pa

Journal article

Bolton P, Kacperczyk M, Samama F, 2022, Net-zero carbon portfolio alignment, Financial Analysts Journal, Vol: 78, Pages: 19-33, ISSN: 0015-198X

We outline a simple and robust methodology to align portfolios with a science-based, carbon budget consistent with maintaining a temperature rise below 1.5 °C with 83% probability. We show how to keep the tracking error at a negligible level. This approach works for both passive and active managers. It also establishes an exit roadmap for carbon-intensive corporates, thereby generating a form of competition to decarbonize within each sector. We also discuss four sources of risks: uncertainty around a rapidly shrinking carbon budget, time impacts on decarbonization rates, implementation risk due to market-wide selling pressure, and uncertainty about taxes on polluting companies.

Journal article

Bolton P, Kacperczyk MT, 2021, Do investors care about carbon risk?, Journal of Financial Economics, Vol: 142, Pages: 517-549, ISSN: 0304-405X

We study whether carbon emissions affect the cross-section of US stock returns. We find that stocks of firms with higher total carbon dioxide emissions (and changes in emissions) earn higher returns, controlling for size, book-to-market, and other return predictors. We cannot explain this carbon premium through differences in unexpected profitability or other known risk factors. We also find that institutional investors implement exclusionary screening based on direct emission intensity (the ratio of total emissions to sales) in a few salient industries. Overall, our results are consistent with an interpretation that investors are already demanding compensation for their exposure to carbon emission risk.

Journal article

Svartzman R, Bolton P, Despres M, Pereira Da Silva LA, Samama Fet al., 2021, Central banks, financial stability and policy coordination in the age of climate uncertainty: a three-layered analytical and operational framework, CLIMATE POLICY, Vol: 21, Pages: 563-580, ISSN: 1469-3062

Journal article

Avdjiev S, Bogdanova B, Bolton P, Jiang W, Kartasheva Aet al., 2020, CoCo issuance and bank fragility, Journal of Financial Economics, Vol: 138, Pages: 593-613, ISSN: 0304-405X

The promise of contingent convertible capital securities (CoCos) as a ‘bail-in’ so-lution has been the subject of considerable theoretical analysis and debate, butlittle is known about their effects in practice. We undertake the first comprehen-sive empirical analysis of bank CoCo issues, a market segment that comprises over 730 instruments totaling $521billion. Four main findings emerge: 1) thepropensity to issue a CoCo is higher for larger and better-capitalized banks; 2)CoCo issues result in a statistically significant decline in issuers’ CDS spread,indicating that they generate risk-reduction benefits and lower costs of debt (thisis especially true for CoCos that convert into equity, that have mechanical trig-gers, and that are classified as Additional Tier 1 instruments); 3) CoCos withonly discretionary triggers do not have a significant impact on CDS spreads; and 4) CoCo issues have no statistically significant impact on stock prices, exceptfor principal write-down CoCos with a high trigger level, which have a positive effect.

Journal article

Bolton P, Li T, Ravina E, Rosenthal Het al., 2020, Investor ideology, Journal of Financial Economics, Vol: 137, Pages: 320-352, ISSN: 0304-405X

We estimate institutional investor preferences from proxy voting records. The W-NOMINATE method maps investors onto a left-right dimension based on votes for fiscal year 2012. Public pension funds and other investors on the left support a more social and environment-friendly orientation of the firm and fewer executive compensation proposals. “Money-conscious” investors appear on the right. The proxy advisor ISS makes voting recommendations that place it center, to the left of most large mutual funds. A second dimension reflects a more traditional governance view, with management-disciplinarian investors, the proxy advisor Glass Lewis among them, pitted against more management-friendly ones.

Journal article

Bolton P, Wang N, Yang J, 2019, Investment under uncertainty with financial constraints, Journal of Economic Theory, Vol: 184, ISSN: 0022-0531

We develop an integrated theory of investment, seasoned equity offerings (SEOs), liquidation, and corporate savings under uncertainty for a financially constrained firm, which features endogenous growth options, abandonment options, and payout policies. Facing costly external financing, the firm prefers to fund its investment internally, so that its optimal policies and value depend on both its earnings fundamentals and liquidity holdings. The firm values not only real flexibility but also financial flexibility. The interaction of real and financial flexibility generates novel real options results: (1) Limited financial slack significantly erodes the value of growth & abandonment options; (2) Firms prefer projects with front-loaded cash-flows; (3) The firm's incentive to forgo costly external financing and to accumulate internal funds may cause substantial delay in investment; (4) A financially constrained firm over-invests in early stages of its life-cycle in an effort to quickly build up its cash-flow generating capacity; (5) SEOs are driven by both firm survival and growth motives. A firm in the mature phase may find itself in three mutually exclusive regions: payout, inaction, and liquidation. A firm in its growth phase may find itself in two additional regions: a region where investment is partly financed with an SEO and a region where investment is solely financed with internal funds. These regions depend on both firm savings and earnings fundamentals.

Journal article

Bolton P, Oehmke M, 2019, Bank resolution and the structure of global banks, The Review of Financial Studies, Vol: 32, Pages: 2383-2421, ISSN: 0893-9454

We study the resolution of global banks by national regulators. Single-point-of-entry (SPOE) resolution, where loss-absorbing capital is shared across jurisdictions, is efficient but faces implementation constraints. First, when expected transfers across jurisdictions are too asymmetric, national regulators fail to set up SPOE resolution ex ante. Second, when required ex post transfers are too large, national regulators ring-fence assets instead of cooperating in SPOE resolution. In this case, a multiple-point-of-entry (MPOE) resolution, where loss-absorbing capital is preassigned, is more robust. Our analysis highlights a fundamental link between efficient bank resolution, the operational structures, risks, and incentives of global banks.

Journal article

Bolton P, Wang N, Yang J, 2019, Optimal contracting, corporate finance, and valuation with inalienable human capital, The Journal of Finance, Vol: 74, Pages: 1363-1429, ISSN: 0022-1082

A risk‐averse entrepreneur with access to a profitable venture needs to raise funds from investors. She cannot indefinitely commit her human capital to the venture, which limits the firm's debt capacity, distorts investment and compensation, and constrains the entrepreneur's risk sharing. This puts dynamic liquidity and state‐contingent risk allocation at the center of corporate financial management. The firm balances mean‐variance investment efficiency and the preservation of financial slack. We show that in general the entrepreneur's net worth is overexposed to idiosyncratic risk and underexposed to systematic risk. These distortions are greater the closer the firm is to exhausting its debt capacity.

Journal article

Andersson M, Bolton P, Samama F, 2019, Hedging Climate Risk, FINANCIAL ANALYSTS JOURNAL, Vol: 72, Pages: 13-32, ISSN: 0015-198X

Journal article

Bolton P, Huang H, 2018, Optimal Payment Areas or Optimal Currency Areas?, 130th Annual Meeting of the American-Economic-Association (AEA), Publisher: AMER ECONOMIC ASSOC, Pages: 505-508, ISSN: 2574-0768

Conference paper

Bolton P, Huang H, 2018, The capital structure of nations, Review of Finance, Vol: 22, Pages: 45-82, ISSN: 1382-6662

When a nation can finance its investments via foreign-currency denominated debt or domestic-currency claims, what is the optimal capital structure of the nation? Building on the functions of fiat money as both medium of exchange, and store of value like corporate equity, our model connects monetary economics, fiscal theory, and international finance under a unified corporate finance perspective. With frictionless capital markets both a Modigliani–Miller theorem for nations and the classical quantity theory of money hold. With capital market frictions, a nation’s optimal capital structure trades off inflation dilution costs and expected default costs on foreign-currency debt. Our framing focuses on the process by which new money claims enter the economy and the potential wealth redistribution costs of inflation.

Journal article

Arezki R, Bolton P, Peters S, Samama F, Stiglitz Jet al., 2017, From global savings glut to financing infrastructure, ECONOMIC POLICY, Vol: 32, Pages: 223-+, ISSN: 0266-4658

Journal article

Bolton P, Freixas X, Gambacorta L, Mistrulli PEet al., 2016, Relationship and Transaction Lending in a Crisis, The Review of Financial Studies, Vol: 29, Pages: 2643-2676, ISSN: 0893-9454

Journal article

Bolton P, 2016, Presidential Address: Debt and Money: Financial Constraints and Sovereign Finance, The Journal of Finance, Vol: 71, Pages: 1483-1510, ISSN: 0022-1082

Journal article

Bolton P, Santos T, Scheinkman JA, 2016, Cream-Skimming in Financial Markets, JOURNAL OF FINANCE, Vol: 71, Pages: 709-736, ISSN: 0022-1082

Journal article

Andersson M, Bolton P, Samama F, 2016, Governance and Climate Change: A Success Story in Mobilizing Investor Support for Corporate Responses to Climate Change, Journal of Applied Corporate Finance, Vol: 28, Pages: 29-33, ISSN: 1078-1196

Journal article

Bolton P, Oehmke M, 2015, Should Derivatives Be Privileged in Bankruptcy?, JOURNAL OF FINANCE, Vol: 70, Pages: 2353-2394, ISSN: 0022-1082

Journal article

Bolton P, Mehran H, Shapiro J, 2015, Executive Compensation and Risk Taking, REVIEW OF FINANCE, Vol: 19, Pages: 2139-2181, ISSN: 1572-3097

Journal article

Bolton P, 2014, Corporate Finance, Incomplete Contracts, and Corporate Control, JOURNAL OF LAW ECONOMICS & ORGANIZATION, Vol: 30, Pages: 64-81, ISSN: 8756-6222

Journal article

Bolton P, Oehmke M, 2013, Strategic conduct in credit derivative markets, INTERNATIONAL JOURNAL OF INDUSTRIAL ORGANIZATION, Vol: 31, Pages: 652-658, ISSN: 0167-7187

Journal article

Bolton P, Chen H, Wang N, 2013, Market timing, investment, and risk management, JOURNAL OF FINANCIAL ECONOMICS, Vol: 109, Pages: 40-62, ISSN: 0304-405X

Journal article

Bolton P, Brunnermeier MK, Veldkamp L, 2013, Leadership, Coordination, and Corporate Culture, REVIEW OF ECONOMIC STUDIES, Vol: 80, Pages: 512-537, ISSN: 0034-6527

Journal article

Bolton P, Samama F, 2012, Capital access bonds: contingent capital with an option to convert, ECONOMIC POLICY, Pages: 275-317, ISSN: 0266-4658

Journal article

Becht M, Bolton P, Roeell A, 2012, Why bank governance is different, OXFORD REVIEW OF ECONOMIC POLICY, Vol: 27, Pages: 437-463, ISSN: 0266-903X

Journal article

Bolton P, Freixas X, Shapiro J, 2012, The Credit Ratings Game, JOURNAL OF FINANCE, Vol: 67, Pages: 85-111, ISSN: 0022-1082

Journal article

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