ESG news, future cash flows, and firm value

Author

Francois DERRIN
Philipp KRUEGER
Augustin LANDIER
Tianhao YAO, Singapore Management UniversityFollow

Publication Type

Working Paper

Version

publishedVersion

Publication Date

10-2023

Abstract

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.

Keywords

ESG, Sustainability, Expectations, Analyst forecasts, Valuation, Discount rate, Cost of capital, Cash flows

Discipline

Business Law, Public Responsibility, and Ethics | Corporate Finance

Research Areas

Finance

First Page

1

Last Page

83

Identifier

10.2139/ssrn.3903274

Citation

DERRIN, Francois; KRUEGER, Philipp; LANDIER, Augustin; and YAO, Tianhao. ESG news, future cash flows, and firm value. (2023). 1-83.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7488

Copyright Owner and License

Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Comments

Revise and resubmit at Journal of Finance

Additional URL

https://doi.org/10.2139/ssrn.3903274