European Business Schools Librarian's Group
HEC Research Papers Series,
HEC Paris
No 1441: ESG News, Future Cash Flows, and Firm Value
François Derrien, Philipp Krueger, Augustin Landier and Tianhao Yao
Additional contact information
François Derrien: HEC Paris
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 Paris
Tianhao Yao: Singapore Management University
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.
Keywords: ESG; Sustainability; Expectations; Analyst forecasts; Valuation; Discount rate; Cost of capital; Cash flows
83 pages, August 13, 2021
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