News-based ESG sentiment and stock price crash risk

From the perspective of ESG news-based sentiment, we examine the impact of ESG performance on stock price crash risk. This paper constructs a sentiment index based on ESG news to measure public opinion of listed firms. First, there is a significant negative relationship between ESG news sentiment and stock price crash risk, indicating that higher ESG news sentiment can reduce the crash risk. Second, heterogeneity analysis demonstrates that ESG sentiment has a greater impact on crash risk reduction for firms with lower analyst coverage, lower information transparency, voluntary ESG information disclosure and non-state-owned. In addition, mechanism tests indicate that ESG sentiment affects stock price crash risk by reducing negative ESG incidents, information asymmetry, and agency costs. This paper examines the research inference that ESG news sentiment is beneficial in reducing stock price crash risk and expands the research on the governance mechanism of stock price crash risk.     

Comparative analysis of environmental,social, and governance disclosures

We examine the level of environmental, social, and governance (ESG) sustainability disclosure by firms between two regimes where disclosure is mandatory versus voluntary. We use the regulatory environment between the United States (US) and European Union (EU) to compare ESG disclosures. Firms in the US are currently under a voluntary disclosure regime. In contrast, EU members are under a mandatory disclosure regulatory regime that began in 2017. We find that EU firms outperform US firms under voluntary disclosure requirements (2007–2016), and the ESG disclosure of EU firms further improves relative to US firms after the implementation of the mandatory disclosure in Europe in 2017. Our results suggest that the 2017 adoption of disclosure guidelines in the EU is associated with improvements in EU firms' ESG disclosure. Our results regarding the value-relevance of ESG disclosure support a move toward mandatory ESG disclosures. Results support current initiatives that have been taken by global regulators and stock exchanges in recommending and requiring globally listed companies to disclose their ESG sustainability information to portray accurate and comprehensive corporate reporting. The results further our understanding of how firms from different institutional environment settings may have disclosed their ESG practices, thus providing opportunities for future research.     

The real effects of stock prices: learning,disclosure and corporate social responsibility

This paper develops a tractable model to study the impact of corporate social responsibility (CSR) on real decisions (i.e., production and disclosure decisions) of a firm which can learn from the stock price. Firms with high CSR disclose more precise information, improving the stock liquidity and price efficiency, which also benefit liquidity traders and consumers. Interventions by regulators in firms’ disclosure decisions, such as mandatory disclosure, can improve social welfare, but their effectiveness depends on the degree of CSR. We also discuss the implications of learning from the price.     

Sustainability priorities,corporate strategy,and investor behavior

Using a sequential experiment, this study examines whether integration of material environmental, social, and governance (ESG) priorities into corporate strategy impacts investors’ short‐ and long‐term stock price assessments and investment allocation. In our examination, we consider the potential moderating effect of financial performance. We find that integration of ESG priorities into strategy does not have a significant effect on investors’ price assessments or investment allocation. This is true regardless of the trend in the company's financial performance. Our results hold across various demographics and the levels of investment knowledge and investment experience. Investors’ perception of relevance and reliability of material ESG information, however, has a mediating effect on their long‐term price assessment and investment allocation. Overall, our findings suggest that any future requirements on disclosure of ESG information by regulators and standard setters should aim to improve investors’ perception of the relevance and reliability of that information.     

Business sustainability factors and stock price informativeness

This paper investigates whether and how business sustainability performance and disclosure factors affect stock price informativeness (SPI). We find that non-financial environmental, social, and governance (ESG) sustainability performance factors are positively associated with idiosyncratic volatility (our proxy for SPI) after controlling for financial-economic performance. We further show that the association between sustainability performance factors and SPI is stronger for firms with higher sustainability disclosure. We find that the association between ESG sustainability performance factors and SPI is stronger when economic performance is weaker, suggesting that investors tend to pay more attention to ESG performance factors when firms are financially underperforming. This study shows that investors pay attention to both firm economic performance (corporate profitability and growth prospect) and ESG sustainability performance and disclosure factors, which have implications for policymakers, regulators, investors, businesses, and researchers.     

The Value of Mandatory Certification: A Real Effects Perspective

We study the real effects of certification to demonstrate the value of mandatory certification over and above mandatory disclosure in enhancing investment efficiency. In our model, a firm's manager selects a project to maximize the firm's short-term stock price, which is a function of her certification and disclosure decisions about the outcome of the project. Although the manager might be either forthcoming or strategic with regard to the disclosure of her private information, she can strategically choose whether to incur a cost or not to certify her disclosure, unless mandated. The manager always selects the first-best project when both certification and disclosure are mandatory. However, when certification is voluntary, project selection is inefficient. In addition, mandating disclosure without mandating certification can lead to lower investment efficiency than mandating neither. In justifying why mandatory certification is beneficial for public firms, our results offer a note of caution regarding the contemplated regulatory moves for increased disclosures by public firms without corresponding certification requirements, for example, the recent SEC proposal requiring extensive climate-related disclosure.     

Corporate Disclosure Policy and the Informativeness of Stock Prices

We examine the association between voluntary corporate disclosure and the informativeness of stock prices. We measure corporate disclosure using the AIMR-FAF annual corporate disclosure ratings. We define price informativeness by the association between current stock returns and future earnings changes: more informative stock price changes contain more information about future earnings changes. To measure this association, we regress current returns against (current and) future earnings changes. The aggregated coefficient on the future earnings changes, which we refer to as the future ERC, is our measure of informativeness (association).We hypothesize and find that greater disclosure is associated with stock prices that are more informative about future earnings (i.e., higher future ERC). These results provide empirical support for the widely held, but heretofore empirically undocumented, belief that greater disclosure provides information benefits to investors.     

Price Discovery and Dissemination of Private Information by Loan Syndicate Participants

We delineate key channels through which flows of confidential information to loan syndicate participants impact the dynamics of information arrival in prices. We isolate the timing of private information flows by estimating the speed of price discovery over quarterly earnings cycles in both secondary syndicated loan and equity markets. We identify borrowers disseminating private information to lenders relatively early in the cycle with firms exhibiting relatively early price discovery in the secondary loan market, documenting that price discovery is faster for loans subject to financial covenants, particularly earnings‐based covenants; for borrowers who experience covenant violations; for borrowers with high credit risk; and for loans syndicated by relationship‐based lenders or highly reputable lead arrangers. We then ask whether early access to private information in the loan market accelerates the speed of information arrival in stock prices. We document that the stock returns of firms identified with earlier private information dissemination to lenders indeed exhibit faster price discovery in the stock market, but only when institutional investors are involved in the firm's syndicated loans. Further, the positive relation between institutional lending and the speed of stock price discovery is more pronounced in relatively weak public disclosure environments. These results are consistent with institutional lenders systematically exploiting confidential syndicate information via trading in the equity market.     

When ESG talks: ESG tone of 10-K reports and its significance to stock markets

Since the ESG topic consistently gains on importance in the investment universe, companies provide investors with information regarding recent and future ESG activities through different reporting channels. The most recent research finds relevance of ESG-related corporate activities for formation of investors' opinion regarding companies' valuations and growth prospects. Based on a sample of more than seventeen thousand unique 10-K reports of US companies filed with SEC in period 2013 to 2019 and the word-power methodology proposed by Jegadeesh and Wu (2013), this study also shows evidence for significant relation of ESG textual tone of 10-K reports to stock market returns of filing companies around the report filing dates. Using the ESG linguistic dictionary recently proposed by Baier, Berninger, and Kiesel (2020), this study shows evidence for significant relation of social and governance-related topics disclosure to stock returns, while environmental narratives being ignored by the markets. When looking at individual words from the ESG lexicon, such words as “community”, “health”, “control” imply positive reaction of markets, while “discrimination”, “embezzlement”, and “crime” are related to negative returns. The robustness analysis based on the inverse document frequency word weightings and actual ESG performance scores confirms the significance of ESG information disclosure of 10-K reports for investors. Thus, this study sheds light on the mechanics of ESG information perception and its influence on capital markets.     

信息披露考核降低了股价崩盘风险吗？

深交所自2001年起对于上市公司的信息披露工作进行考核。本文从信息透明度的 角度,利用深交所上市公司信息披露考核数据,考察信息披露质量对股价崩盘风险的影响。研 究发现：（1）深圳证券交易所的信息披露考核对于股价崩盘风险有显著影响,整体来看上市 公司的信息披露质量与股价崩盘风险存在显著的负向关系;（2）对于经营业绩较差的公司而 言,信息披露质量与股价崩盘风险的负向关系更加显著;（3）相对于非主板公司而言,信息披 露质量对主板公司的股价崩盘风险的抑制作用更加显著。     

Mandatory Portfolio Disclosure,Stock Liquidity,and Mutual Fund Performance

We examine the impact of mandatory portfolio disclosure by mutual funds on stock liquidity and fund performance. We develop a model of informed trading with disclosure and test its predictions using the May 2004 SEC regulation requiring more frequent disclosure. Stocks with higher fund ownership, especially those held by more informed funds or subject to greater information asymmetry, experience larger increases in liquidity after the regulation change. More informed funds, especially those holding stocks with greater information asymmetry, experience greater performance deterioration after the regulation change. Overall, mandatory disclosure improves stock liquidity but imposes costs on informed investors.     

Bringing the Future Forward: The Effect of Disclosure on the Returns-Earnings Relation

This paper studies how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings. Our results show that firms with relatively more informative disclosures "bring the future forward" so that current returns reflect more future earnings news. We also find that changes in disclosure activity are positively related to changes in the importance of future earnings news for current returns. These results suggest that a firm's disclosure activity reveals credible, relevant information not in current earnings, and that this information is incorporated into the current stock price.     

Disclosure Decisions by Firms and the Competition for Price Efficiency

This paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities. It is shown that more efficient security prices can lead to more efficient investment decisions. This provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm. Disclosure decisions are studied. It is shown that firms may expend more resources on disclosure than is socially optimal. This is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure.     

The effect of stock price on discretionary disclosure

I examine the impact of exogenous changes in stock prices on voluntary disclosure. Specifically, I investigate whether stock price declines prompt managers to voluntarily disclose firm-value-related information (management forecasts) that was withheld prior to the decline because it was unfavorable but became favorable at a lower stock price. Consistent with my predictions, I find that managers are more likely to release good-news forecasts following larger stock price declines but that there is no association between the likelihood of releasing good-news forecasts and the magnitude of stock price increases. Additional evidence indicates that the good-news forecasts eventually conveyed by withholding firms after negative price shocks would likely have resulted in negative market reactions had they been released before the shocks. More generally, I provide evidence that managers withhold bad news and that exogenous stock price declines can induce its disclosure.     

投资者关注与市场反应——来自中国证券交易所交易公开信息的自然实验

涨停的股票能否被交易公开信息披露取决于收益率排名中的随机因素,与股票的基本面特征无关。本文利用这一机制设计自然实验检验了投资者关注对股价的影响。实证结果显示交易公开信息披露使股票受到投资者更多的关注,增加了小额资金的净流入,减少了大额资金的净流入和股价的短期收益率,抑制了股价短期波动率,同时降低了股价在长期发生反转的可能性。频繁登上交易公开信息的知名营业部买入的股票受到更多关注,相应的市场反应也更加显著。进一步的研究表明监管性信息披露引发的投资者关注通过降低市场信息不对称抑制了股价反转。     

Private and public disclosures and the efficiency of stock prices

In this paper I examine the effects of private and public disclosures on the informational efficiency of stock prices. In addition to making a public announcement such as an earnings announcement, a public firm can make private disclosure to an analyst. If the analyst's relative information advantage is below a threshold level, private disclosure to the analyst leads to more efficient stock price. I demonstrate that the allocation of information across market participants is an important determinant of price efficiency. While accounting regulators often argue the need for equal access to information, the paper shows that there are conditions under which a limited amount of informational inequality may lead to more efficient stock prices.     

International variations in ESG disclosure – Do cross-listed companies care more?

We study the quantity of ESG disclosure of 1,963 large-cap companies headquartered in 49 countries. Using the Bloomberg ESG disclosure score as the measure of disclosure quantity, we find that firm characteristics explain most of the variation in firms' ESG disclosure, whereas variations in country factors such as corruption and political rights explain less. We empirically examine and extend the theoretical framework of the liability of foreignness in capital markets. Our results support the notion that cross-listed firms disclose more ESG data than those only listed in their home market to mitigate the liability of foreignness in external capital markets. We also find that an increased percentage of foreign ownership does not augment ESG disclosure. Companies which opt to increase foreign equity ownership at home do not encounter the challenges of foreignness. Our findings suggest that cross-listed status is likely to reduce the importance of country factors for variations in ESG disclosure quantity.     

Shareholder coordination and stock price informativeness

We show that firm‐specific information is more likely to be incorporated into stock prices when firms have stronger shareholder coordination. The premise of our work is that geographic proximity reduces communication costs among shareholders, thereby leading to better coordination. The positive coordination‐informativeness relation is driven mainly by shareholder coordination among dedicated and independent institutions. We further show that the positive effect is more pronounced for firms with weaker governance mechanisms, suggesting that shareholder coordination could serve as a substitute conduit of price discovery. Lastly, we propose that shareholder coordination improves stock price informativeness through the channel of enhanced voluntary disclosure quality.     

The impact of the ESG disclosure on sell-side analysts’ target prices: The new era post Paris agreements

We examine whether the ESG disclosure is a value driver for sell-side analysts, focusing on the largest 3000 US listed firms between 2012 and 2020. ESG represents Environmental factors, long-term Social factors, and Governance issues. These factors affect a community’s long-term sustainability and serve to guide the broader financial markets, increasingly oriented towards sustainable investing. Specifically, we question whether firms exhibiting higher disclosure scores show higher target prices. Moreover, we investigate the impact of the 2015 Paris agreements addressing climate change on stock’s evaluations. We find that: (1) analysts recognize a premium for firms more engaged in ESG transparency (2) before the Paris agreements this premium is mainly driven by Governance disclosure; (3) after the event this premium is also driven by Environmental disclosure. To the extent that we control for different model specifications, our findings suggest that ESG disclosure is a strategic tool for firms to create value.     

ESG Controversies,ESG Disclosure and Analyst Forecast Accuracy

We investigate whether an environmental social governance (ESG) disclosure moderates the relation between ESG controversies and analyst forecast accuracy. The previous literature has shown that ESG controversies increase uncertainty about a firm's future prospects, while ESG disclosure decreases this uncertainty. We therefore take the next step and integrate ESG controversies, ESG disclosure and uncertainty into one model. Our study is based on 8,369 firm-year observations across 51 countries from 2008 to 2017, containing data from RepRisk, Bloomberg and the Institutional Brokers' Estimate System. We find that analyst forecast errors are generally higher for firms with higher exposure to ESG controversies. More importantly, we establish ESG disclosure as a moderator that mitigates the strength of the relation between ESG controversies and analyst forecast errors. Additionally, we identify that the most important pillar for the relation derives from social controversies and disclosure.