Institutional Trading around Firms’ Negative ESG Events

Abstract

Using institutional trades at transaction-level and firm’s negative ESG news releases, we find that institutional trading prior to the news is informative of the forthcoming news and that institutions are able to earn abnormal profits from those trades. Further analysis shows that institutions’ informativeness is less pronounced for firms with better existing CSR reputation, lower firm-level information asymmetry, and larger shareholder breadth. We also find evidence that some institutions forgo economic profits to trade for social reasons. Our results are robust to matched sample analysis, different forecasting horizons, and alternative measures of firm’s long-term CSR reputation.

Keywords: Negative ESG Events; Institutional Trading; Corporate Social Responsibility (CSR); ESG

JEL Classification: G14; G23; M14