ESG scores, scandal probability, and event returns

ESG scores, scandal probability, and event returns

Blog Article

Abstract The informativeness of environmental, social, and governance (ESG) scores and their actual impact on firms remains understudied.To address this gap in the literature, we make theoretical predictions and conduct empirical research revealing that a high ESG score is associated with a lower probability of ESG scandals and lower stock returns during a scandal Hoover HMN7182BK French Style Fridge Freezer In Black event.Our results suggest that ESG scores are heterogeneous but informative, and that a strong ESG reputation may have both positive and negative consequences for firms.Drawing on our findings, we develop a model and showcase that firms face an optimization problem when determining optimal ESG investment levels.

Two Movies equilibria may exist based on the trade-off between ESG scandal losses and ESG adjustment costs.Our model explains why certain firms make heterogeneous ESG decisions.