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

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: 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