ESG News, Future Cash Flows, and Firm Value
83 Pages Posted: 13 Aug 2021 Last revised: 2 Nov 2023
Date Written: October 14, 2022
We investigate the expected consequences of negative ESG news on firms' future profits. After learning about negative ESG news, analysts significantly downgrade their forecasts at short and longer horizons. Negative ESG news affect forecasts more strongly at longer horizons than other types of negative corporate news. The negative revisions of earnings forecasts following negative ESG news reflect expectations of lower future sales (rather than higher future costs). Quantitatively, forecast revisions can explain most of the negative impacts of ESG news on firm value. Analysts are correct to revise forecasts downward following negative ESG news.
Keywords: ESG, Sustainability, Expectations, Analyst forecasts, Valuation, Discount rate, Cost of capital, Cash flows
JEL Classification: G32, M14
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