Do Investors exaggerate corporate ESG information? Evidence of the ESG momentum effect in the Taiwanese market

By Hong-Yi Chen, Sharon S. Yang. 2020

123 citations recorded by the source corpus.

Abstract As environmental, social, and governance (ESG) factors become increasingly important in the business sector, investors pay more attention to corporate ESG information. Integrating ESG factors into the investment process has transformed from a niche to mainstream activity. This study demonstrates that investors systematically exaggerate corporate ESG information, leading to ESG momentum effects in financial markets. Specifically, investors exhibit optimistic responses to good news about companies with higher ESG scores but pessimistic responses to bad news about companies with lower ESG scores. Consistent with the overreaction hypothesis, the empirical results show that an ESG momentum strategy can lead to substantial profits in the short run and reversals in the long run. Moreover, this study reveals that investors overreact to the environmental factor more than social or governance factors.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/a4eaf11a8e21826057b0c68d9052844394d37811

Citations in the corpus

• Past, present, and future of sustainable finance: insights from big data analytics through machine learning of scholarly research (2022, unknown): “…sustainability reporting metrices and provided strong evidences of greenwashing of sustainability reports across markets (Arouri et al., 2021; Chen & Yang, 2020; Huang, 2020; Yu et al., 2020), with few studies rejecting greenwashing tendency of firms across sectors and markets (Uyar et al.,…”