Agency Cost of Choosing Green: Insights from Mariya Letdin, Cayman Seagraves, Chongyu Wang, and Tingyu Zhou Using CompStak Data

At CompStak, we are proud to contribute to research that shapes the future of sustainable commercial real estate.

“Agency Cost of Choosing Green” by Mariya Letdin, Cayman Seagraves, Chongyu Wang, and Tingyu Zhou examines the agency costs associated with choosing green building features in commercial real estate, shedding light on the financial and strategic trade-offs involved.

The full abstract of the paper can be found below, offering a glimpse into the depth of research that leverages the precision of CompStak data to assess market changes.

“This study examines whether the growing number of firms that choose to occupy green-certified headquarters do so to maximize shareholder value or as a reflection of managerial agency costs. Our findings reveal a statistically significant decline in firm value following green-certified occupancy, with the effect being more pronounced for firms making more extensive green commitments. Temporal analysis confirms that valuation declines occur post-certification, ruling out reverse causality. We further show that, consistent with agency cost theory, the effect is amplified in firms with weaker corporate governance mechanisms. Stock market analysis indicates that firms moving into green buildings underperform their peers, with a trading strategy of shorting such firms yielding positive abnormal returns. Our results provide empirical evidence that green-certified corporate headquarters function as indirect managerial compensation, imposing agency costs that diminish shareholder value. These findings challenge the assumption that corporate environmental investments necessarily contribute to long-term financial performance, emphasizing the importance of corporate governance.”

Download the full paper here.