Does Sustainable Investing Make Stocks Less Sensitive to Information about Cash Flows?

68 Pages Posted: 30 Oct 2023

See all articles by Steffen Hitzemann

Steffen Hitzemann

University of Houston - Department of Finance

AN QIN

Rutgers Business School - Rutgers University

Stanislav Sokolinski

Michigan State University - Department of Finance

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: October 1, 2023

Abstract

Traditional finance theory asserts that stock prices depend on expected future cash flows. We explore how the growing prominence of non-pecuniary preferences in the form of sustainable investing alters this core financial relationship. Using the setting of earnings announcements, we find that sustainable investing diminishes stock price sensitivity to earnings news by 45%-58%. This decline in announcement-day returns is mirrored by a comparable drop in trading volume. This effect persists beyond the immediate announcement period, implying a lasting alteration in price formation rather than a short-lived mispricing. Our findings suggest that sustainable investing reduces the significance of cash flows in shaping stock prices.

Keywords: Sustainable Investing, Institutional Investors, Earnings Announcements

JEL Classification: G11, G12, G14, G23.

Suggested Citation

Hitzemann, Steffen and QIN, AN and Sokolinski, Stanislav and Tamoni, Andrea, Does Sustainable Investing Make Stocks Less Sensitive to Information about Cash Flows? (October 1, 2023). Available at SSRN: https://ssrn.com/abstract=4588883 or http://dx.doi.org/10.2139/ssrn.4588883

Steffen Hitzemann

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

AN QIN

Rutgers Business School - Rutgers University ( email )

Stanislav Sokolinski (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

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