ESG Incidents and Shareholder Value
76 Pages Posted: 19 Feb 2021 Last revised: 20 Feb 2021
Date Written: February 17, 2021
This paper uses novel environmental, social, and governance (ESG) incident news data to study poor ESG practices. I find that firms’ past ESG incident rates predict more incidents, weaker profits, and lower risk-adjusted stock returns. When examining the cause of these abnormal returns, I find analyst forecast errors as well as lower returns around earnings announcements and subsequent incidents. Moreover, incident rates predict stronger abnormal returns in firms with higher short-term ownership, higher valuation uncertainty, and lower investor attention. Overall, these findings suggest that poor ESG practices negatively impact long-term value, which is not fully reflected in stock prices.
Keywords: ESG incidents, Corporate sustainability, Corporate social responsibility, Socially responsible investment, Managerial myopia, Limited investor attention
JEL Classification: G11, G14, M14
Suggested Citation: Suggested Citation