ESG news, future cash flows, and firm value

ESG news, future cash flows, and firm value

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 negat...

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Bibliographic Details
Main Authors: DERRIN, Francois, KRUEGER, Philipp, LANDIER, Augustin, YAO, Tianhao
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2023
Subjects:
ESG
Sustainability
Expectations
Analyst forecasts
Valuation
Discount rate
Cost of capital
Cash flows
Business Law, Public Responsibility, and Ethics
Corporate Finance
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/7488
https://ink.library.smu.edu.sg/context/lkcsb_research/article/8487/viewcontent/SSRN_id3903274.pdf
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Institution: Singapore Management University
Language: English
Description
Summary: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.

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