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ESG News, Future Cash Flows, and Firm Value

Author

Listed:
  • Derrien, François

    (HEC Paris)

  • Krueger, Philipp

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; European Corporate Governance Institute (ECGI); University of Geneva - Geneva School of Economics and Management)

  • Landier, Augustin

    (HEC Paris)

  • Yao, Tianhao

    (Singapore Management University)

Abstract

We investigate the expected consequences of negative ESG news on firms' future profits. After learning about negative ESG news, analysts significantly downgrade their forecasts at short and longer horizons. Negative ESG news affect forecasts more strongly at longer horizons than other types of negative corporate news. The negative revisions of earnings forecasts following negative ESG news reflect expectations of lower future sales (rather than higher future costs). Quantitatively, forecast revisions can explain most of the negative impacts of ESG news on firm value. Analysts are correct to revise forecasts downward following negative ESG news.

Suggested Citation

  • Derrien, François & Krueger, Philipp & Landier, Augustin & Yao, Tianhao, 2021. "ESG News, Future Cash Flows, and Firm Value," HEC Research Papers Series 1441, HEC Paris.
    • Handle: RePEc:ebg:heccah:1441
    DOI: 10.2139/ssrn.3903274
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    Cited by:

    1. Gao, Ning & Jiang, Wei & Jin, Jiaxu, 2024. "Unravelling investors’ diverging responses to U.S. firms' global ESG incidents," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).

    More about this item

    Keywords

    ESG; Sustainability; Expectations; Analyst forecasts; Valuation; Discount rate; Cost of capital; Cash flows;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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