Institutional Trading around Firms’ Negative ESG Incidents

49 Pages Posted: 22 Nov 2019 Last revised: 4 Oct 2020

See all articles by Lai T. Hoang

Lai T. Hoang

The University of Western Australia

Marvin Wee

Australian National University (ANU); Financial Research Network (FIRN)

Joey (Wenling) Yang

The University of Western Australia

Jing Yu

The University of Sydney; Financial Research Network (FIRN)

Date Written: November 12, 2019

Abstract

Using transaction-level institutional trades and a firm’s negative ESG incidents, we find
that institutional investors adjust their order flow prior to these non-financial events.
First, their trading is in the same direction of post-event cumulative abnormal returns
and results in abnormal profits. Second, the relationship between institutional order
flow and the subsequent abnormal return is also influenced by the firm’s existing CSR
score, and their trading in high-CSR firms lead to significant profit attenuation. These
findings suggest that institutional investors’ trading decisions are driven by financial
as well as social incentives. We conduct further analysis on firm-level information
asymmetry and shareholder breadth to identify their information advantage for their
profits. A subsample analysis reveals that institutional order flow is negatively related
to their preference for social responsible investment measured by the institution-level
CSR index.

Keywords: Institutional trading; Negative ESG incidents; Corporate social responsibility (CSR); ANcerno; Sustainalytics

JEL Classification: G14; G23; M14

Suggested Citation

Hoang, Lai T. and Wee, Marvin and Yang, Joey (Wenling) and Yu, Jing, Institutional Trading around Firms’ Negative ESG Incidents (November 12, 2019). Available at SSRN: https://ssrn.com/abstract=3485411 or http://dx.doi.org/10.2139/ssrn.3485411

Lai T. Hoang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Marvin Wee

Australian National University (ANU) ( email )

The Australian National University
College of Business and Economics
Canberra, 2601
Australia
+61 2 61250416 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Joey (Wenling) Yang

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

Jing Yu

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
105
Abstract Views
763
rank
285,315
PlumX Metrics