Market Reactions to ESG News : How do negative firm specific ESG news affect the market value of public companies in Europe and the US?

In this master thesis, we examine how negative ESG news specific to individual firms impact the market value of publicly traded companies in the US and Europe over a short term period. We assess news events of 329 listed companies in the period between 2010 and 2020. Initially, we conduct an event study with the full sample to test a general but fundamental hypothesis and analyze whether we can find negative abnormal returns that are significantly different from zero following firm specific negative ESG news. Moreover, to provide further insight, we perform three additional event study analyzes with split samples. To examine whether companies with higher ESG commitment are being penalized by the market, we split the sample using UN Global Compact membership as a proxy. Furthermore, we split the sample based on the reach of the media source that reported the incident, and lastly whether the incident was new or recurring for the individual firms. Our analysis reveals a significant negative abnormal return for ESG incidents that were considered novel for the companies. Additionally, incidents reported by limited reach media sources also show a marginally significant negative impact. Moreover, our findings indicate that companies operating within specific industries tend to face more pronounced negative abnormal returns when the news incidents are related to environmental issues. Furthermore, we find marginally significant results of companies with higher ESG commitment experiencing larger negative abnormal results. However, concerning our general research question, we cannot find evidence suggesting that ESG news has a significant negative effect on a public company’s market value in the short term.nhhma