Stock price reactions to ESG news: The role of ESG ratings and disagreement

Abstract

stock price reactions to esg news: the role of esg ratings and disagreement george serafeim aaron yoon working paper 21-079 stock price reactions to esg news: the role of esg ratings and disagreement george serafeim harvard business school aaron yoon northwestern university working paper 21-079 copyright © 2021 by george serafeim and aaron yoon. working papers are in draft form. this working paper is distributed for purposes of comment and discussion only. it may not be reproduced without permission of the copyright holder. copies of working papers are available from the author. funding for this research was provided in part by harvard business school. we are grateful to truvalue labs and sustainalytics for providing access to their esg data. stock price reactions to esg news: the role of esg ratings and disagreement george serafeim and aaron yoon∗ first draft: may 2020 this draft: october 2020 abstract we investigate whether esg ratings predict future esg news and the associated market reactions. we find that the consensus rating predicts future news, but its predictive ability diminishes for firms with large disagreement between raters. relation between news and market reaction is moderated by the consensus rating. in the presence of high disagreement between raters, the relation between news and market reactions weakens while the rating with most predictive power predicts future stock returns. overall, while rating disagreement hinders the incorporation of value relevant …

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