Date of Publication: June 01, 2010

Author: Cristiana Manescu

Summary:

Using detailed data on seven environmental, social, and governance (ESG) attributes for a long panel of large publicly-traded U.S. firms during July 1992-June 2008, only community relations were found to have had a positive effect on risk-adjusted stock returns, which effect was due to mispricing. Additionally, a changing effect of employee relations was found from positive during July 1992-June 2003 to negative during July 2003-June 2008. The positive effect was due to mispricing, but there is some evidence that the negative effect was compensation for low non-sustainability risk. A negative effect of human-rights and product-safety indicators on riskadjusted stock returns in the more recent period was also found to be due to mispricing. The implications are that certain ESG attributes are value relevant but they are not efficiently incorporated into stock prices.

Link to Full Reading:

https://gupea.ub.gu.se/bitstream/2077/20998/8/gupea_2077_20998_8.pdf