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Stock price reactions to ESG news: the role of ESG ratings and disagreement

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  • George Serafeim

    (Harvard Business School)

  • Aaron Yoon

    (Northwestern University)

Abstract

We investigate whether environmental, social, and governance (ESG) ratings predict future ESG news and the associated market reactions. We find that the consensus rating predicts future news, but its predictive ability diminishes for firms with large disagreement between raters. The relation between news and market reaction is moderated by the consensus rating. In the presence of high disagreement between raters, the relation between news and market reactions weakens, while the rating with the most predictive power predicts future stock returns. Overall, while rating disagreement hinders the incorporation of value-relevant ESG news into prices, ratings predict future news and proxy for market expectations of future news.

Suggested Citation

  • George Serafeim & Aaron Yoon, 2023. "Stock price reactions to ESG news: the role of ESG ratings and disagreement," Review of Accounting Studies, Springer, vol. 28(3), pages 1500-1530, September.
    • Handle: RePEc:spr:reaccs:v:28:y:2023:i:3:d:10.1007_s11142-022-09675-3
    DOI: 10.1007/s11142-022-09675-3
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    More about this item

    Keywords

    Market reaction; ESG rating; Ratings disagreement; ESG news;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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