The role of ESG ranking in retail and institutional investors' attention and trading behavior

Ebrahim Bazrafshan

Finance Research Letters, 2023, vol. 58, issue PC

Abstract: This study investigates the impact of disclosure processing costs on the utilization of environmental, social, and governance (ESG) information by retail and institutional investors. I posit that retail investors may face challenges in processing ESG textual due to associated integration costs. However, institutional investors can benefit from noisy information by leveraging their better information processing capabilities. Evidence shows that ESG textual reporting positively affects institutional investors' attention and trading activities, but has no discernible impact on retail investors. However, when rating agency converts ESG information into easy-to-understand ranking format, it results in increased (decreased) trading activities among retail (institutional) investors.

Keywords: ESG ranking; Rating agencies; Retail investors; Institutional investors; Information processing costs; Corporate social responsibility; Trading volume; Attention (search for similar items in EconPapers)
JEL-codes: D83 G14 G32 G34 M41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008346

DOI: 10.1016/j.frl.2023.104462

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