ESG News, Future Cash Flows, and Firm Value

Francois Derrien (), Philipp Krueger, Augustin Landier and Tianhao Yao
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Tianhao Yao: HEC Paris - Ecole des Hautes Etudes Commerciales

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Abstract: We investigate the expected consequences of negative ESG news on firms' future profits. After learning about negative ESG news, analysts significantly downgrade their forecasts at short and longer horizons. Negative ESG news affect forecasts more strongly at longer horizons than other types of negative corporate news. The negative revisions of earnings forecasts following negative ESG news reflect expectations of lower future sales (rather than higher future costs). Quantitatively, forecast revisions can explain most of the negative impacts of ESG news on firm value. Analysts are correct to revise forecasts downward following negative ESG news and ESG sensitive analysts tend to provide more accurate forecasts.

Keywords: ESG; Sustainability; Expectations; Analyst forecasts; Valuation; Discount rate; Cost of capital; Cash flows (search for similar items in EconPapers)
Date: 2021-08-13
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Working Paper: ESG News, Future Cash Flows, and Firm Value (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03857579

DOI: 10.2139/ssrn.3903274

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