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How Do ESG Incidents Affect Firm Value?

Author

Listed:
  • François Derrien

    (HEC Paris - Finance Department)

  • Philipp Krueger

    (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)

  • Augustin Landier

    (HEC Paris)

  • Tianhao Yao

    (HEC Paris)

Abstract

We investigate how sell-side analysts adjust their earnings forecasts following ESG incidents. We find that following negative ESG news, analysts significantly downgrade their earnings forecasts at all horizons, including long-term. Forecast revisions account for all the negative impact of ESG incidents on firm values, implying no change in the discount rate. The negative revision of earnings forecasts reflects lower expectations on future sales (rather than higher future costs). In Europe, analysts who exhibit a stronger sensitivity to ESG news provide significantly more precise forecasts than their peers.

Suggested Citation

  • François Derrien & Philipp Krueger & Augustin Landier & Tianhao Yao, 2021. "How Do ESG Incidents Affect Firm Value?," Swiss Finance Institute Research Paper Series 21-84, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2184
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3903274
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    Citations

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    Cited by:

    1. Bolognesi, Enrica & Burchi, Alberto, 2023. "The impact of the ESG disclosure on sell-side analysts’ target prices: The new era post Paris agreements," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Kvam, Emilie & Molnar, Peter & Wankel, Ingvild & Odegaard, Bernt Arne, 2022. "Do sustainable company stock prices increase with ESG scrutiny? Evidence using social media," UiS Working Papers in Economics and Finance 2022/1, University of Stavanger.
    3. Chen, Zhongfei & Xie, Guanxia, 2022. "ESG disclosure and financial performance: Moderating role of ESG investors," International Review of Financial Analysis, Elsevier, vol. 83(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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