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

George Serafeim and Aaron Yoon ()
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George Serafeim: Harvard Business School
Aaron Yoon: Northwestern University

Review of Accounting Studies, 2023, vol. 28, issue 3, No 11, 1500-1530

Abstract: 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.

Keywords: Market reaction; ESG rating; Ratings disagreement; ESG news (search for similar items in EconPapers)
JEL-codes: G14 M14 M41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (29)

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DOI: 10.1007/s11142-022-09675-3

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