Market Valuation of ESG Metrics Between Firms: Evidence from Stock Prices
Date
2022-12
Authors
Tran, Thu
Major Professor
Orazem, Peter
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Altmetrics
Abstract
In recent years, the general public has grown increasingly concerned about a firm’s non-financial performance when valuing stocks. A growing trend for many investors incorporates Environmental, Social, and Governance (ESG) metrics into their investment decisions. This paper will analyze how comparable firms perform based on their ESG scores. The analysis uses data on daily stock prices published by the Center for Research in Security Prices (CRSP). We find firms with higher ESG metrics with higher valuations than firms with lower scores. These benchmarks influence serial and amateur investor behaviors, which signify a stock’s lower risk. The effect of ESG metrics on serial investors is much more significant than on amateur investors. An analysis of ESG press release days has shown that stocks with higher ESG ratings have no statistically significant differences from stocks with lower ESG ratings. This suggests that many investors don’t value this metric as much as research shows.
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creative component
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2022