Corporate ESG Profiles and Investor Horizons

49 Pages Posted: 9 Oct 2017 Last revised: 23 Jun 2018

See all articles by Laura T. Starks

Laura T. Starks

University of Texas at Austin - Department of Finance

Parth Venkat

Securities and Exchange Commission (SEC)

Qifei Zhu

Nanyang Technological University (NTU) - Nanyang Business School

Date Written: October 9, 2017

Abstract

Questions and debate surround institutional investor preferences regarding the Environmental, Social and Governance (ESG) profiles of their portfolio firms. To address these issues, we examine changes in their portfolios and find that preferences for corporate ESG depend critically on investor horizons: Investors with longer horizons tend to prefer higher-ESG firms, while short-term investors prefer the opposite. Consistent with the importance of horizon, we find that investors behave more patiently toward high ESG firms, selling less after negative earnings surprises or poor stock returns. We further support these findings using changes in the FTSE4Good Index as shocks to firms' ESG reputations.

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

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Qifei Zhu (Contact Author)

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Singapore, 639798
Singapore

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