We would like to invite all enthusiasts and finance researchers to the Kozminski University Finance Research Seminar Series event! When? 25 October 2022, 12:15 PM Where? MS Teams - link will be emailed following registration. Presentation title: ESG Rating Score Revisions and Stock Returns
Rients Galema & Dirk Gerritsen (link to article HERE).
Abstract
We analyze the impact of ESG rating score revisions on stock returns for U.S.-listed firms. Using holding periods of six months, we find that decreases in rating scores are followed by annualized negative abnormal returns of approximately 3%. These results are mostly due to large ESG score decreases and decreases in the environment score. We find no evidence for a short-term effect of rating revisions. Instead, our evidence is consistent with a medium-run effect. First, we find that results are not driven by (unexpected) out-of-cycle revisions which are likely driven by ESG news. Second, sustainable index revisions, which occur quarterly, partly drive the effect of rating revisions. Third, especially long-term institutional investors decrease their holdings after a decrease in the rating score. Likely, it is not solely investors' non-pecuniary motives that drive these results, because we find that revisions in rating scores predict subsequent changes in operating performance and systematic risk.
Speaker: Dirk Gerritsen, Assistant Professor at the Utrecht University School of Economics
Dirk obtained his PhD from Utrecht University in 2014. He is employed as an Assistant Professor at the Utrecht University School of Economics where he conducts research on financial consumers, institutions and markets. In addition, he is the program director of the MSc. program in Banking and Finance, and he teaches Investments-related courses on both the BSc. and the MSc. level.