ESG news, future cash flows, and firm value

74 Pages Posted: 13 Aug 2021 Last revised: 29 Dec 2021

See all articles by François Derrien

François Derrien

HEC Paris - Finance Department

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; European Corporate Governance Institute (ECGI); University of Geneva - Geneva School of Economics and Management

Augustin Landier

HEC

Tianhao Yao

HEC Paris

Date Written: August 11, 2021

Abstract

We investigate how sell-side analysts adjust their earnings forecasts following negative ESG incidents. We find that after learning about negative ESG news, analysts significantly downgrade their earnings forecasts over all horizons, including long-term horizons. Negative ESG incidents affect earnings forecasts at longer horizons than other types of corporate incidents. The negative revisions of earnings forecasts reflect expectations of lower future sales (rather than higher future costs). Forecast revisions explain most of the negative impacts of ESG incidents on firm value. In Europe, analysts who exhibit greater sensitivity to ESG news provide significantly more precise forecasts than their peers.

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

JEL Classification: G32, M14

Suggested Citation

Derrien, François and Krueger, Philipp and Landier, Augustin and Yao, Tianhao, ESG news, future cash flows, and firm value (August 11, 2021). Swiss Finance Institute Research Paper No. 21-84, Available at SSRN: https://ssrn.com/abstract=3903274 or http://dx.doi.org/10.2139/ssrn.3903274

François Derrien

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)

HOME PAGE: http://www.hec.fr/derrien

Philipp Krueger (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute ( email )

Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva School of Economics and Management ( email )

Uni Mail
Bd du Pont-d'Arve 40
Geneva, 1211
Switzerland

Augustin Landier

HEC ( email )

France
+33630006051 (Phone)

HOME PAGE: http://https://sites.google.com/site/augustinlandier/

Tianhao Yao

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
0640759646 (Phone)

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