The Journal of Finance· 2026Q1
Corporate ESG Profiles and Investor Horizons
- 314citations
- Q1SCImago
- 2026year
Short summary
Long-term institutional investors favor firms with better Environmental, Social, and Governance (ESG) profiles, holding them through poor earnings but divesting after negative ESG incidents.
AI-generated from the title and abstract; the full text is not read.
Key points
- Long-term institutional investors overweight firms with better ESG profiles in their portfolios.
- These investors tolerate poor earnings but divest rapidly after negative ESG incidents.
- Investor horizons, influenced by regulatory shocks, affect the strength of ESG portfolio tilts.
- Differences in information evaluation between long- and short-term investors are evident.
AI-generated from the title and abstract; the full text is not read.
Abstract
ABSTRACT We find that long‐term institutional investors tilt their portfolios toward firms with better Environmental, Social, and Governance (ESG) profiles, in the cross sections of both institutional investor portfolios and the ownership of firms. We test whether several theoretically motivated mechanisms can explain this relationship. Our results that long‐term investors exhibit patience with firms around poor earnings announcements, but quickly sell portfolio firms after negative ES incidents, support the view that long‐ and short‐term investors evaluate information differently. Our evidence shows that limits‐to‐arbitrage play a role, as we find that investors' ESG tilt weakens following regulatory shocks that shorten their horizon.
The authors' abstract, as published at the source. The Journal of Finance, 2026 · DOI ↗
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Field: Strategy and Management
Strategy and ManagementBusiness, Management and Accounting