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ESG news and firm value: Evidence from China’s automation of pollution monitoring

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  • Choi, Darwin
  • Mukherjee, Abhiroop
  • Zheng, Zexin

Abstract

We study how financial markets integrate news about pollution abatement costs into firm values. Using China’s automation of pollution monitoring, we find that firms with factories in bad-news cities – cities that used to report much lower pollution than the automated reading – see significant declines in stock prices. This is consistent with the view that investors expect firms in high-pollution cities to pay significant adjustment and abatement costs to become “greener.” However, the efficiency with which such information is incorporated into prices varies widely – while the market reaction is quick in the Hong Kong stock market, it is considerably delayed in the mainland ones, resulting in a drift. The equity markets expect most of these abatement costs to be paid by private firms and not by state-owned enterprises, and by brown firms and not by green firms.

Suggested Citation

  • Choi, Darwin & Mukherjee, Abhiroop & Zheng, Zexin, 2025. "ESG news and firm value: Evidence from China’s automation of pollution monitoring," Research in International Business and Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:riibaf:v:78:y:2025:i:c:s0275531925002806
    DOI: 10.1016/j.ribaf.2025.103024
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