Does a Change in the ESG Ratings Influence Firms’ Market Value? Evidence from an Event Study

Paolo Maccarrone (), Alessandro Illuzzi and Simone Inguanta
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Paolo Maccarrone: Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Via Lambruschini 4b, 20156 Milano, Italy
Alessandro Illuzzi: Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Via Lambruschini 4b, 20156 Milano, Italy
Simone Inguanta: Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Via Lambruschini 4b, 20156 Milano, Italy

JRFM, 2024, vol. 17, issue 8, 1-17

Abstract: In recent years, the field of “ESG finance” has seen rapid growth, resulting in the emergence and expansion of ESG ratings and rating agencies. This study investigates how financial investors react to updates in ESG ratings provided by two prominent ESG rating agencies, namely MSCI and Refinitiv. The main objective is to determine whether any positive or negative changes in a company’s sustainability ratings directly impact its market value. The Event Study methodology was used for this investigation, which analyses the Cumulated Average Abnormal Returns (CAARs) of economic events to assess their influence on corporate valuations. We analysed over 840 rating updates (events) using a sample of 75 companies across various industries, all listed on major stock exchanges. Our findings indicate that shifts in sustainability ratings, as evaluated by the two rating agencies, do not significantly impact companies’ market capitalisation. Furthermore, these outcomes remain consistent over time, suggesting that financial markets are not assigning increasing significance to ESG ratings. We offer potential explanations for these findings, which are discussed in light of the existing literature on the subject.

Keywords: ESG; ESG finance; ESG rating agencies; ESG rating divergence; firm value; market capitalisation (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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