Corporate ESG Profiles and Investor Horizons

53 Pages Posted: 9 Oct 2017 Last revised: 9 Feb 2023

See all articles by Laura T. Starks

Laura T. Starks

University of Texas at Austin - Department of Finance

Parth Venkat

University of Alabama - Department of Economics, Finance and Legal Studies

Qifei Zhu

Nanyang Business School, Nanyang Technological University

Date Written: October 9, 2017

Abstract

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

Suggested Citation

Starks, Laura T. and Venkat, Parth and Zhu, Qifei, Corporate ESG Profiles and Investor Horizons (October 9, 2017). Available at SSRN: https://ssrn.com/abstract=3049943 or http://dx.doi.org/10.2139/ssrn.3049943

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

Parth Venkat

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Qifei Zhu (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

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