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Does a Change in the ESG Ratings Influence Firms’ Market Value? Evidence from an Event Study

Author

Listed:
  • Paolo Maccarrone

    (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Via Lambruschini 4b, 20156 Milano, Italy)

  • Alessandro Illuzzi

    (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Via Lambruschini 4b, 20156 Milano, Italy)

  • Simone Inguanta

    (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Via Lambruschini 4b, 20156 Milano, Italy)

Abstract

In recent years, the field of “ESG finance” has seen rapid growth, resulting in the emergence and expansion of ESG ratings and rating agencies. This study investigates how financial investors react to updates in ESG ratings provided by two prominent ESG rating agencies, namely MSCI and Refinitiv. The main objective is to determine whether any positive or negative changes in a company’s sustainability ratings directly impact its market value. The Event Study methodology was used for this investigation, which analyses the Cumulated Average Abnormal Returns (CAARs) of economic events to assess their influence on corporate valuations. We analysed over 840 rating updates (events) using a sample of 75 companies across various industries, all listed on major stock exchanges. Our findings indicate that shifts in sustainability ratings, as evaluated by the two rating agencies, do not significantly impact companies’ market capitalisation. Furthermore, these outcomes remain consistent over time, suggesting that financial markets are not assigning increasing significance to ESG ratings. We offer potential explanations for these findings, which are discussed in light of the existing literature on the subject.

Suggested Citation

  • Paolo Maccarrone & Alessandro Illuzzi & Simone Inguanta, 2024. "Does a Change in the ESG Ratings Influence Firms’ Market Value? Evidence from an Event Study," JRFM, MDPI, vol. 17(8), pages 1-17, August.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:8:p:340-:d:1451202
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    References listed on IDEAS

    as
    1. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    2. Vincenzo Capizzi & Eleonora Gioia & Giancarlo Giudici & Francesca Tenca, 2021. "The Divergence Of Esg Ratings: An Analysis Of Italian Listed Companies," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-21, December.
    3. Jordi Surroca & Josep A. Tribó & Sandra Waddock, 2010. "Corporate responsibility and financial performance: the role of intangible resources," Strategic Management Journal, Wiley Blackwell, vol. 31(5), pages 463-490, May.
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    Cited by:

    1. Bachner, Felix, 2025. "Decoding market reactions: Analysis of divergent signals of ESG ratings," International Review of Financial Analysis, Elsevier, vol. 103(C).

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