Environmental Performance and Analyst Information Processing Costs

48 Pages Posted: 3 Sep 2016 Last revised: 20 Jun 2019

See all articles by Paul A. Griffin

Paul A. Griffin

University of California, Davis - Graduate School of Management

Thaddeus Neururer

University of Akron - The George W. Daverio School of Accountancy

Estelle Sun

Boston University - Questrom School of Business

Date Written: August 31, 2016

Abstract

This study tests the hypothesis that analyst information processing costs vary positively in the level of firms’ environmental performance ratings. Based on proxies for analyst information processing costs (e.g., the number of stocks followed, frequency and timeliness of earnings revisions, the accuracy of earnings forecasts), we find results to support this hypothesis. These findings deepen our knowledge of the informational setting that conditions analysts’ decisions by identifying the cost of processing environmental information as a potential determinant of the stocks analysts include in their portfolios. Our findings also have implications for capital market efficiency because the higher information processing costs induced by environmental performance ratings could discourage analysts from developing trading strategies to exploit asset mispricing.

Keywords: analyst earnings forecasts, analyst processing costs, environmental strengths and concerns, cost of socially responsible investing

JEL Classification: G14, M41, M45, K22

Suggested Citation

Griffin, Paul A. and Neururer, Thaddeus and Sun, Estelle Yuan, Environmental Performance and Analyst Information Processing Costs (August 31, 2016). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2833508 or http://dx.doi.org/10.2139/ssrn.2833508

Paul A. Griffin (Contact Author)

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

Thaddeus Neururer

University of Akron - The George W. Daverio School of Accountancy ( email )

United States

Estelle Yuan Sun

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
1-617-353-2353 (Phone)

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