Environmental performance and analyst information processing costs

Paul A. Griffin, Thaddeus Neururer and Estelle Y. Sun

Journal of Corporate Finance, 2020, vol. 61, issue C

Abstract: This study tests whether the information processing costs of analysts vary positively with the environmental performance information available on the firms they follow. Consistent with this conjecture, we find that these costs increase when analysts process a wider array of environmental performance ratings. Specifically we find that as the number of environmental performance ratings increases, analysts cover fewer firms in their portfolio, provide fewer earnings-per-share (EPS) forecast revisions, and make less timely forecast revisions. Two additional tests confirm that our results relate to environmental performance information and not to confounding factors. First, the “shock” of the Global Warming Solutions Act of 2006 implemented for California firms in 2012 increases analyst information processing costs incremental to the main effect of environmental performance ratings. Second, analyst information processing costs increase further in the year a firm covered by an analyst provides a CSR report for the first time. Our results have implications for firm managers considering voluntary environmental disclosure and investors deciding on what stocks to include in their socially responsible portfolios because when processing costs are high, analysts will provide less information or less timely information, resulting in more gradual price discovery in capital markets.

Keywords: Environmental performance ratings; Analyst forecast revisions; Analyst information processing costs; Global Warming Solutions Act of 2006; CSR report initiation (search for similar items in EconPapers)
JEL-codes: G14 K22 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:61:y:2020:i:c:s0929119918300221

DOI: 10.1016/j.jcorpfin.2018.08.008

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