Investor Integration of Earnings and Esg News

We examine whether and how investors integrate earnings and ESG news. This research question is of practical importance given the increasing interconnectedness of ESG and financial information as well as the extraordinary growth in the demand for ESG information by investors and regulators. During earnings announcement periods, our analyses show that investors’ reaction to ESG news depends on the direction of earnings news, as investors price salient ESG news when earnings news is positive but not when earnings news is negative. Outside earnings announcement periods, our analyses show that the investor response to salient ESG news incorporates earnings news from the prior quarter. Collectively, our results indicate that earnings performance plays a critical role in the investor response to ESG news, a finding that has substantial implications for the growing literature that evaluates how investors integrate ESG news into their trading decisions.