{"title":"Repeat Offenders: ESG Incident Recidivism and Investor Underreaction","authors":"Simon Glossner","doi":"10.2139/ssrn.3004689","DOIUrl":null,"url":null,"abstract":"This paper uses novel environmental, social, and governance (ESG) incident news data to study poor ESG practices. I find that firms’ past ESG incident rates predict more incidents, weaker profits, and lower risk-adjusted stock returns. When examining the cause of these abnormal returns, I find analyst forecast errors as well as lower returns around earnings announcements and subsequent incidents. Moreover, incident rates predict stronger abnormal returns in firms with higher short-term ownership, higher valuation uncertainty, and lower investor attention. Overall, these findings suggest that poor ESG practices negatively impact long-term value, which is not fully reflected in stock prices.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2021-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"24","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"ERN: Asset Pricing Models (Topic)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3004689","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 24
Abstract
This paper uses novel environmental, social, and governance (ESG) incident news data to study poor ESG practices. I find that firms’ past ESG incident rates predict more incidents, weaker profits, and lower risk-adjusted stock returns. When examining the cause of these abnormal returns, I find analyst forecast errors as well as lower returns around earnings announcements and subsequent incidents. Moreover, incident rates predict stronger abnormal returns in firms with higher short-term ownership, higher valuation uncertainty, and lower investor attention. Overall, these findings suggest that poor ESG practices negatively impact long-term value, which is not fully reflected in stock prices.