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Investor reaction to ESG news sentiment: evidence from South Africa

Author

Listed:
  • Kingstone Nyakurukwa
  • Yudhvir Seetharam

Abstract

Purpose - Utilising a database that distinctly classifies firm-level ESG (environmental, social and governance) news sentiment as positive or negative, the authors examine the information flow between the two types of ESG news sentiment and stock returns for 20 companies listed on the Johannesburg Stock Exchange between 2015 and 2021. Design/methodology/approach - The authors use Shannonian transfer entropy to examine whether information significantly flows from ESG news sentiment to stock returns and a modified event study analysis to establish how stock prices react to changes in the two types of ESG sentiment. Findings - Using Shannonian transfer entropy, the authors find that for the majority of the companies studied, information flows from the positive ESG news sentiment to stock returns while only a minority of the companies exhibit significant information flow from negative ESG news sentiment to returns. Furthermore, the study’s findings show significantly positive (negative) abnormal returns on the event date and beyond for both upgrades and downgrades in positive ESG news sentiment. Originality/value - This study is among the first in an African context to investigate the impact of ESG news sentiment on stock market returns at high frequencies.

Suggested Citation

  • Kingstone Nyakurukwa & Yudhvir Seetharam, 2023. "Investor reaction to ESG news sentiment: evidence from South Africa," EconomiA, Emerald Group Publishing Limited, vol. 24(1), pages 68-85, March.
    • Handle: RePEc:eme:econpp:econ-09-2022-0126
    DOI: 10.1108/ECON-09-2022-0126
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    More about this item

    Keywords

    Green finance; JSE; Transfer entropy; Sustainable investing; Behavioural finance; C58; G41; M14; Q56;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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