Article2025

ESG News, Future Cash Flows, and Firm Value

François Derrien · Philipp Krüger · Augustin Landier · Tianhao Yao

52 citations0/0 files storedThe Journal of Finance

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Corporate Social Responsibility Reporting Financial Markets and Investment Strategies Auditing, Earnings Management, Governance

Abstract

ABSTRACT We investigate the expected consequences of negative environmental, social, and governance (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 affects forecasts more strongly at longer horizons than other types of negative corporate news. The negative revisions of earnings forecasts following negative ESG news largely 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.

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References

2022Aggregate Confusion: The Divergence of ESG Ratings 2019Do Investors Care about Carbon Risk?2021Firms and social responsibility: A review of ESG and CSR research in corporate finance 2009The price of sin: The effects of social norms on markets 2013The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness 2011Does the stock market fully value intangibles? Employee satisfaction and equity prices 2020Sustainable investing in equilibrium 2018Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

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