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Does ESG matter to investors? ESG scores and the stock price response to new information

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  • Leite, Brian J.
  • Uysal, Vahap B.

Abstract

We examine how a third-party assessment of a firm's relative ESG attractiveness affects investor demand for the firm's equity in the presence of new information. Utilizing an event-study methodology, with credit-rating change events as proxies for new positive and negative information, we find evidence supporting a high ESG score as a significant factor in determining how investors respond to new positive information. Specifically, after controlling for relevant fixed effects, we find that the highest quartile of ESG scores amplifies the positive stock-price reaction to credit-rating upgrades by 130 basis points, providing evidence of confirmation bias.

Suggested Citation

  • Leite, Brian J. & Uysal, Vahap B., 2023. "Does ESG matter to investors? ESG scores and the stock price response to new information," Global Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:glofin:v:57:y:2023:i:c:s1044028323000467
    DOI: 10.1016/j.gfj.2023.100851
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    Cited by:

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    2. Pandey, Dharen Kumar & Kumari, Vineeta & Palma, Alessia & Goodell, John W., 2024. "Impact of ESG regulation on stock market returns: Investor responses to a reasonable assurance mandate," Finance Research Letters, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Behavioral finance; Corporate social responsibility; Credit ratings; ESG; Equity pricing; Event studies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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