Not by Whom but Where: Analyst Reaction to Firms’ ESG Incidents
50 Pages Posted: 6 Jun 2022
Date Written: May 27, 2022
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: Suggested Citation