Does Sustainable Investing Matter to the Market?

78 Pages Posted: 18 Nov 2021 Last revised: 24 Nov 2021

See all articles by Claire Economidou

Claire Economidou

Utrecht University - School of Economics

Dimitrios Gounopoulos

University of Bath

Dimitris Konstantios

University of Piraeus

Emmanuel D. Tsiritakis

University of Piraeus

Date Written: November 17, 2021

Abstract

This study examines whether information about a firm’s engagement in environmental social and governance (ESG) responsible practices is material to market participants. Evidence from a sample of 1,856 IPOs by US companies for the period 2007-2018 robustly documents that firms for which there is available ESG performance information prior to going public exhibit higher underpricing due to positive market response. Such reaction is validated by agency cost-reducing practices that ESG-rated firms follow prior to the IPO, the superior post-IPO market performance they exhibit in terms of equity financing and the high er share of financially sophisticated investors they attract compared to their ESG-unrated peers. Overall, our results highlight that it pays off to do good and to have the right investors; however, firms’ good ESG practices need to be visible to the market, through rating practices, to rip off the benefits.

Keywords: Sustainability; Environmental Social Governance (ESG), Initial Public Offering (IPO), Market Performance; Firms Valuation

JEL Classification: G10; G12; G14; G30

Suggested Citation

Economidou, Claire and Gounopoulos, Dimitrios and Konstantios, Dimitris and Tsiritakis, Emmanuel D., Does Sustainable Investing Matter to the Market? (November 17, 2021). Available at SSRN: https://ssrn.com/abstract=3965134 or http://dx.doi.org/10.2139/ssrn.3965134

Claire Economidou

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Dimitris Konstantios

University of Piraeus ( email )

Karaoli and Dimitriou 80
80 KARAOLI & DIMITRIOU STREET
Piraeus, Attiki 18534
Greece

Emmanuel D. Tsiritakis

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
00302104142187 (Phone)

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