The ESG stopping effect: Do investor reactions differ across the lifespan of ESG initiatives?

55 Pages Posted: 1 Jun 2022 Last revised: 17 Jan 2023

See all articles by Shannon Garavaglia

Shannon Garavaglia

University of Pittsburgh - Accounting Group

Ben W. Van Landuyt

University of Arizona

Brian J. White

Cornell University - Samuel Curtis Johnson Graduate School of Management

Julie R. Irwin

University of Texas - McCombs School of Business

Date Written: December 21, 2022

Abstract

In general, investors respond favorably to firms’ ongoing ESG initiatives. In a series of experiments, we examine whether their reactions differ across ESG initiatives’ lifespan. In particular, we predict and find evidence of an “ESG stopping effect.” Even when investors react similarly to the launch of new initiatives that are ESG-related versus non-ESG-related (i.e., general business initiatives), they react more negatively to companies stopping ESG initiatives compared to stopping general business initiatives. We further show that this more pronounced negative response to stopping ESG initiatives stems from investors’ sensitivity to, and feelings of responsibility for, the undesirable ethical considerations inherent to stopping ESG initiatives. That is, ethical considerations related to a firm’s initiatives loom larger for investors’ judgments when initiatives are stopped compared to when they are started. Finally, we find that the ESG stopping effect is exacerbated when ESG initiatives are relatively more effective, and are reduced but not eliminated when firms provide financial justification for ending an ESG initiative.

Keywords: ESG, lifecycle, ethicality, investor judgment and decision-making

Suggested Citation

Garavaglia, Shannon and Van Landuyt, Ben W. and White, Brian J. and Irwin, Julie R., The ESG stopping effect: Do investor reactions differ across the lifespan of ESG initiatives? (December 21, 2022). Accounting, Organizations and Society, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4120762 or http://dx.doi.org/10.2139/ssrn.4120762

Shannon Garavaglia

University of Pittsburgh - Accounting Group ( email )

United States

Ben W. Van Landuyt

University of Arizona ( email )

Tucson, AZ 85721
United States

Brian J. White (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Julie R. Irwin

University of Texas - McCombs School of Business ( email )

Business,Government and Society Department
Austin, TX 78712
United States

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