Not by Whom but Where: Analyst Reaction to Firms’ ESG Incidents

50 Pages Posted: 6 Jun 2022

See all articles by Nataliya Gerasimova

Nataliya Gerasimova

BI Norwegian Business School

Maximilian Rohrer

NHH - Norwegian School of Economics

Date Written: May 27, 2022

Abstract

We document that financial analysts exhibit a local-event bias. In particular, we find that analysts located in countries affected by ESG incidents start issuing lower recommendations to firms that committed the incidents compared to analysts from other countries. The effect lasts for more than a year after the event, concentrates in hard-to-value firms, and is also reflected in financial forecasts. We show that this local-event bias is distinct from local-firm bias, the general tendency of issuing optimistic forecasts for local firms – also referred to as home bias. Our evidence is consistent with an underlying preference to rely on personal experience combined with attachment to a given geographic place and is not driven by informational advantage.

Keywords: Analyst recommendations, ESG incidents, Sell-side analysts, Location

JEL Classification: D91,G14, G29, G41

Suggested Citation

Gerasimova, Nataliya and Rohrer, Maximilian, Not by Whom but Where: Analyst Reaction to Firms’ ESG Incidents (May 27, 2022). Available at SSRN: https://ssrn.com/abstract=4121755 or http://dx.doi.org/10.2139/ssrn.4121755

Nataliya Gerasimova (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Maximilian Rohrer

NHH - Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

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