Does Sustainable Investing Dull Stock Reactions to Cash Flow News? 

83 Pages Posted: 30 Oct 2023

See all articles by Steffen Hitzemann

Steffen Hitzemann

University of Houston - Department of Finance

Alaia A. Qin

Rutgers Business School - Rutgers University

Stanislav Sokolinski

Michigan State University - Department of Finance

Andrea Tamoni

University of Notre Dame - Mendoza College of Business

Date Written: May 31, 2024

Abstract

The growing importance of sustainability criteria for investment decisions suggests that cash-flow news may become less significant in determining stock prices. We examine this proposition through earnings announcements, showing that stocks owned by sustainable investors are 45%-58% less sensitive to earnings news. This reduced sensitivity is accompanied by lower trading volume and persists post-announcement, indicating a lasting impact on price formation rather than temporary mispricing. We investigate the reasons behind the weaker earnings response and find that it cannot be explained by differences in earnings news content, market anticipation, or ownership by other investor types. Calibrating a flexible present value framework reveals that lower earnings persistence in high-sustainable-ownership stocks accounts for a large part of the effect. However, our analysis also implies a 1%-3% reduced discount rate for stocks with high sustainable ownership in order to fully align the model-implied price response with the observed data.

Keywords: Sustainable Investing, Institutional Investors, Earnings Announcements. JEL codes: G11, G12, G14, G23

JEL Classification: G11, G12, G14, G23.

Suggested Citation

Hitzemann, Steffen and Qin, Alaia A. and Sokolinski, Stanislav and Tamoni, Andrea, Does Sustainable Investing Dull Stock Reactions to Cash Flow News?  (May 31, 2024). 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

Alaia A. 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

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

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