Retail investors and ESG news

Qianqian Li, Edward M. Watts and Christina Zhu

Journal of Accounting and Economics, 2024, vol. 78, issue 2

Abstract: An important debate exists around the extent to which retail investors make sustainable investments and, if they do, why. We contribute to this debate by investigating the aggregate trading patterns of retail investors around a comprehensive sample of key environmental, social, and governance (ESG) news events for U.S. firms. We show that ESG news events appear to be an important factor in retail investors’ portfolio allocation decisions. Yet, inconsistent with arguments about retail investors’ nonpecuniary preferences, our evidence shows that retail investors mainly trade on this information when they deem it financially material to a company’s stock performance. We also find their net trading demand predicts abnormal returns in the subsample of financially material events, consistent with retail traders benefiting from incorporating ESG-related information into their decision-making when it influences firm value. Overall we conclude that the average U.S. retail investor cares about firms’ ESG activities but primarily to the extent these activities matter for company financial performance.

Keywords: Retail investors; Individual investors; Environmental; Social and governance (ESG); Socially responsible investing (SRI) (search for similar items in EconPapers)
JEL-codes: G12 G14 G20 G24 J32 M14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:78:y:2024:i:2:s0165410124000491

DOI: 10.1016/j.jacceco.2024.101719

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Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

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