Corporate ESG Profiles and Investor Horizons
53 Pages Posted: 9 Oct 2017 Last revised: 9 Feb 2023
Date Written: October 9, 2017
We find that long-term institutional investors tilt their portfolios towards firms with better ESG profiles both in the cross-section and after new information on ESG improvements. We test whether several theoretically motivated mechanisms can explain the relationship between investor horizon and firms' ESG profiles. Long-term investor patience around poor earnings announcements suggests that investors evaluate short and long-term information differently. In addition, our evidence shows that limits-to-arbitrage plays a role as we find investors' ESG tilting weakens following regulatory shocks that shorten their horizon. We find no evidence that clientele catering drives this relationship.
Keywords: Corporate ESG, Investor Horizons, Corporate Short-Termism
JEL Classification: G34, G23, G00
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