IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v84y2022ics1057521922003398.html
   My bibliography  Save this article

ESG scores and target price accuracy: Evidence from sell-side recommendations in BRICS

Author

Listed:
  • Umar, Muhammad
  • Mirza, Nawazish
  • Rizvi, Syed Kumail Abbas
  • Naqvi, Bushra

Abstract

ESG profiling of a firm reflects its exposure to various environmental, social, and governance factors, which influence the business dynamics and impact the valuation metrics. In this paper, we evaluate the relationship between ESG scores and the target price precision of sell-side analysts. We employ four different constructs of forecast accuracy on a comprehensive sample of firms with analyst coverage in the BRICS between 2011 and 2021. The results demonstrate that the ESG score positively impacts the target price accuracy, and firms with higher ESG scores have lower forecast errors. The findings remained robust even after segregating the sample based on buy, hold, and sell recommendations. Finally, we report that within ESG, environmental and governance factors largely explain the forecast accuracy while the social aspects were insignificant. The results also suggest that the precision of sell-side analysts is persistent across periods. These findings have important implications for investors.

Suggested Citation

  • Umar, Muhammad & Mirza, Nawazish & Rizvi, Syed Kumail Abbas & Naqvi, Bushra, 2022. "ESG scores and target price accuracy: Evidence from sell-side recommendations in BRICS," International Review of Financial Analysis, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003398
    DOI: 10.1016/j.irfa.2022.102389
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521922003398
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2022.102389?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chlomou, Grigoria & Demirakos, Efthimios, 2020. "How do financial analysts implement the Sum-of-the-Parts (SOTP) valuation framework?," International Review of Financial Analysis, Elsevier, vol. 70(C).
    2. Angela Andrews & Pradyot Sen & Jens Stephan, 2018. "Analysts’ forecasts and uncertainty about firm value," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 17(3), pages 298-315, August.
    3. Abdelmajid Hmaittane & Kais Bouslah & Bouchra M’Zali, 2019. "Does corporate social responsibility affect the cost of equity in controversial industry sectors?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 18(4), pages 635-662, July.
    4. Moshirian, Fariborz & Ng, David & Wu, Eliza, 2009. "The value of stock analysts' recommendations: Evidence from emerging markets," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 74-83, March.
    5. Gu, Chen & Guo, Xu & Zhang, Chengping, 2022. "Analyst target price revisions and institutional herding," International Review of Financial Analysis, Elsevier, vol. 82(C).
    6. Angela Andrews & Pradyot Sen & Jens Stephan, 2018. "Analysts’ forecasts and uncertainty about firm value," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 17(3), pages 298-315, August.
    7. Pineau, Edouard & Le, Phuong & Estran, Rémy, 2022. "Importance of ESG factors in sovereign credit ratings," Finance Research Letters, Elsevier, vol. 49(C).
    8. Li, Jing-Ping & Mirza, Nawazish & Rahat, Birjees & Xiong, Deping, 2020. "Machine learning and credit ratings prediction in the age of fourth industrial revolution," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    9. Imam, Shahed & Chan, Jacky & Shah, Syed Zulfiqar Ali, 2013. "Equity valuation models and target price accuracy in Europe: Evidence from equity reports," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 9-19.
    10. Di Bella, Gabriel & Grigoli, Francesco, 2019. "Optimism, pessimism, and short-term fluctuations," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 79-96.
    11. Low, Rand Kwong Yew & Tan, Enoch, 2016. "The role of analyst forecasts in the momentum effect," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 67-84.
    12. Li, Yi & Shen, Dehua & Wang, Pengfei & Zhang, Wei, 2019. "Do analyst recommendations matter for rival companies?," International Review of Financial Analysis, Elsevier, vol. 65(C).
    13. Hemant Kumar Badaye & Jason Narsoo, 2020. "Forecasting multivariate VaR and ES using MC-GARCH-Copula model," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 21(5), pages 493-516, January.
    14. Gregory, Richard Paul, 2022. "ESG activities and firm cash flow," Global Finance Journal, Elsevier, vol. 52(C).
    15. Abdelmajid Hmaittane & Kais Bouslah & Bouchra M’Zali, 2019. "Does corporate social responsibility affect the cost of equity in controversial industry sectors?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 18(4), pages 635-662, July.
    16. Christian Fieberg & Armin Varmaz & Thorsten Poddig, 2019. "Risk models vs characteristic models from an investor’s perspective," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 20(2), pages 201-222, July.
    17. Zhang, Dayong & Cao, Hong & Dickinson, David G. & Kutan, Ali M., 2016. "Free cash flows and overinvestment: Further evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 58(C), pages 116-124.
    18. Linda H. Chen & George J. Jiang & Kevin X. Zhu, 2022. "Information uncertainty of fiscal year end quarter earnings," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(2), pages 83-108, April.
    19. Jundong (Jeff) Wang, 2020. "Does analyst forecast dispersion represent investors’ perceived uncertainty toward earnings?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 19(3), pages 289-312, April.
    20. Jundong (Jeff) Wang, 2020. "Does analyst forecast dispersion represent investors’ perceived uncertainty toward earnings?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 19(3), pages 289-312, April.
    21. Galletta, Simona & Mazzù, Sebastiano & Naciti, Valeria, 2022. "A bibliometric analysis of ESG performance in the banking industry: From the current status to future directions," Research in International Business and Finance, Elsevier, vol. 62(C).
    22. Chiu, Chun-Ju & Ho, Amy Yueh-Fang & Tsai, Li-Fang, 2022. "Effects of financial constraints and managerial overconfidence on investment-cash flow sensitivity," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 135-155.
    23. Mirza, Nawazish & Abbas Rizvi, Syed Kumail & Saba, Irum & Naqvi, Bushra & Yarovaya, Larisa, 2022. "The resilience of Islamic equity funds during COVID-19: Evidence from risk adjusted performance, investment styles and volatility timing," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 276-295.
    24. Josef Schosser & Heiko Ströbele, 2019. "What is the value of Facebook? Evidence from the Schwartz/Moon model," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 20(3), pages 267-290, July.
    25. Khan, Muhammad Arif, 2022. "ESG disclosure and Firm performance: A bibliometric and meta analysis," Research in International Business and Finance, Elsevier, vol. 61(C).
    26. Naqvi, Bushra & Mirza, Nawazish & Rizvi, Syed Kumail Abbas & Porada-Rochoń, Małgorzata & Itani, Rania, 2021. "Is there a green fund premium? Evidence from twenty seven emerging markets," Global Finance Journal, Elsevier, vol. 50(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dai, Zhifeng & Luo, Zhuang & Liu, Chang, 2023. "Dynamic volatility spillovers and investment strategies between crude oil, new energy, and resource related sectors," Resources Policy, Elsevier, vol. 83(C).
    2. Lang, Qiaoqi & Ma, Feng & Mirza, Nawazish & Umar, Muhammad, 2023. "The interaction of climate risk and bank liquidity: An emerging market perspective for transitions to low carbon energy," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    3. Chen, Zhuo & Mirza, Nawazish & Umar, Muhammad & Sawtari, Zeina & Xie, Xin, 2024. "Mineral resource investments and mutual funds performance: A remedy for recovery in BRICS," Resources Policy, Elsevier, vol. 91(C).
    4. Rahat, Birjees & Nguyen, Pascal, 2023. "Does ESG performance impact credit portfolios? Evidence from lending to mineral resource firms in emerging markets," Resources Policy, Elsevier, vol. 85(PB).
    5. Wang, Xiang & Yin, Jian & Yang, Yao & Muda, Iskandar & Abduvaxitovna, Shamansurova Zilola & AlWadi, Belal Mahmoud & Castillo-Picon, Jorge & Abdul-Samad, Zulkiflee, 2023. "Relationship between the resource curse, Forest management and sustainable development and the importance of R&D Projects," Resources Policy, Elsevier, vol. 85(PA).
    6. Umar, Muhammad & Mirza, Nawazish & Ribeiro-Navarrete, Samuel, 2023. "The impact of financial restatements on sell-side recommendation accuracy," Finance Research Letters, Elsevier, vol. 55(PA).
    7. Chen, Zhonglu & Umar, Muhammad & Su, Chi-Wei & Mirza, Nawazish, 2023. "Renewable energy, credit portfolios and intermediation spread: Evidence from the banking sector in BRICS," Renewable Energy, Elsevier, vol. 208(C), pages 561-566.
    8. Caterina Lucarelli & Sabrina Severini, 2024. "Anatomy of the chimera: Environmental, Social, and Governance ratings beyond the myth," Business Strategy and the Environment, Wiley Blackwell, vol. 33(5), pages 4198-4217, July.
    9. Xie, Xin & Mirza, Nawazish & Umar, Muhammad & Ji, Xiaoman, 2024. "Covid-19 and market discipline: Evidence from the banking sector in emerging markets," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 612-621.
    10. Zhang, Can & Liang, Qian, 2023. "Natural resources and sustainable financial development: Evidence from South Asian economies," Resources Policy, Elsevier, vol. 80(C).
    11. Rahat, Birjees & Nguyen, Pascal, 2022. "Risk-adjusted investment performance of green and black portfolios and impact of toxic divestments in emerging markets," Energy Economics, Elsevier, vol. 116(C).
    12. Zheng, ShiYong & Liu, Hua & Hafeez, Muhammad & Wang, Xiaofeng & Fahad, Shah & Yue, Xiao-Guang, 2023. "Testing the resource curse hypothesis: The dynamic roles of institutional quality, inflation and growth for Dragon," Resources Policy, Elsevier, vol. 85(PA).
    13. Sakkakom Maneenop & Chaiyuth Padungsaksawasdi & Sirimon Treepongkaruna, 2024. "Co‐opted board, environment, social and governance," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 1161-1172, February.
    14. Wu, Hua & Zhang, Ke & Li, Renyu, 2024. "ESG score, analyst coverage and corporate resilience," Finance Research Letters, Elsevier, vol. 62(PB).
    15. Shan, Shan & Mirza, Nawazish & Umar, Muhammad & Hasnaoui, Amir, 2023. "The nexus of sustainable development, blue financing, digitalization, and financial intermediation," Technological Forecasting and Social Change, Elsevier, vol. 195(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mirza, Nawazish & Umar, Muhammad & Mangafic, Jasmina, 2023. "Covid-19 vaccines and investment performance: Evidence from equity funds in European Union," Finance Research Letters, Elsevier, vol. 53(C).
    2. Chen, Zhonglu & Umar, Muhammad & Su, Chi-Wei & Mirza, Nawazish, 2023. "Renewable energy, credit portfolios and intermediation spread: Evidence from the banking sector in BRICS," Renewable Energy, Elsevier, vol. 208(C), pages 561-566.
    3. Wang, Xiang & Yin, Jian & Yang, Yao & Muda, Iskandar & Abduvaxitovna, Shamansurova Zilola & AlWadi, Belal Mahmoud & Castillo-Picon, Jorge & Abdul-Samad, Zulkiflee, 2023. "Relationship between the resource curse, Forest management and sustainable development and the importance of R&D Projects," Resources Policy, Elsevier, vol. 85(PA).
    4. Su, Chi-Wei & Mirza, Nawazish & Umar, Muhammad & Chang, Tsangyao & Albu, Lucian Liviu, 2022. "Resource extraction, greenhouse emissions, and banking performance," Resources Policy, Elsevier, vol. 79(C).
    5. Liu, Kaiyuan & Afzal, Ayesha & Zhong, Yifan & Hasnaoui, Amir & Yue, Xiao-Guang, 2023. "Investigating the resource curse: Evidence from MENA and N-11 countries," Resources Policy, Elsevier, vol. 80(C).
    6. Umar, Muhammad & Mirza, Nawazish & Ribeiro-Navarrete, Samuel, 2023. "The impact of financial restatements on sell-side recommendation accuracy," Finance Research Letters, Elsevier, vol. 55(PA).
    7. Lang, Qiaoqi & Ma, Feng & Mirza, Nawazish & Umar, Muhammad, 2023. "The interaction of climate risk and bank liquidity: An emerging market perspective for transitions to low carbon energy," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    8. Pan, Changchun & Sun, Tiezhu & Mirza, Nawazish & Huang, Yuzhe, 2022. "The pricing of low emission transitions: Evidence from stock returns of natural resource firms in the GCC," Resources Policy, Elsevier, vol. 79(C).
    9. Rahat, Birjees & Nguyen, Pascal, 2022. "Risk-adjusted investment performance of green and black portfolios and impact of toxic divestments in emerging markets," Energy Economics, Elsevier, vol. 116(C).
    10. Li, Zhuolun, 2023. "Do geopolitical risk, green finance, and the rule of law affect the sustainable environment in China? Findings from the BARDL approach," Resources Policy, Elsevier, vol. 81(C).
    11. Dai, Zhifeng & Luo, Zhuang & Liu, Chang, 2023. "Dynamic volatility spillovers and investment strategies between crude oil, new energy, and resource related sectors," Resources Policy, Elsevier, vol. 83(C).
    12. Lin, Shu & Yuan, Ying, 2023. "China's resources curse hypothesis: Evaluating the role of green innovation and green growth," Resources Policy, Elsevier, vol. 80(C).
    13. Zhou, Xiaoxiao & Lin, Junjie & Wang, Lu & Huang, Hongyun & Zhao, Xin, 2022. "Wind power resources and China's sustainable development roadmap: Evidence from China," Resources Policy, Elsevier, vol. 79(C).
    14. Gülcan Erkilet & Gerrit Janke & Rainer Kasperzak, 2022. "How valuation approach choice affects financial analysts’ target price accuracy," Journal of Business Economics, Springer, vol. 92(5), pages 741-779, July.
    15. Fang, Shuya & Fang, Wei, 2023. "How fiscal decentralization and trade diversification influence sustainable development: Moderating role of resources dependency," Resources Policy, Elsevier, vol. 84(C).
    16. Xie, Xin & Mirza, Nawazish & Umar, Muhammad & Ji, Xiaoman, 2024. "Covid-19 and market discipline: Evidence from the banking sector in emerging markets," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 612-621.
    17. Li, Shanshan & Long, Fang & Long, Litao, 2022. "Resources curse and sustainable development revisited: Evaluating the role of remittances for China," Resources Policy, Elsevier, vol. 79(C).
    18. Zheng, Jingling & Li, Zeyun & Ghardallou, Wafa & Wei, Xuecheng, 2023. "Natural resources and economic performance: Understanding the volatilities caused by financial, political and economic risk in the context of China," Resources Policy, Elsevier, vol. 84(C).
    19. Ni, Yinan & Sun, Yanfei, 2023. "Environmental, social, and governance premium in Chinese stock markets," Global Finance Journal, Elsevier, vol. 55(C).
    20. Chen, Zhonglu & Mirza, Nawazish & Huang, Lei & Umar, Muhammad, 2022. "Green Banking—Can Financial Institutions support green recovery?," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 389-395.

    More about this item

    Keywords

    ESG; Sell-side analysts; Forecast accuracy; Valuations; BRICS;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003398. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.