Abstract
ABSTRACT For ESG-oriented investors, the inquiry into whether companies with high-ESG scores can achieve excess returns holds significant significance. Existing research has generated some controversy regarding the existence of an ESG premium. In this study, we attempt to reconcile conflicting empirical findings by introducing a dimension of investment time horizons. We examine the impact of ESG scores (representing long-term values) and ESG (short-term changes) on subsequent stock returns. Our results indicate that high-ESG stocks tend to achieve higher expected returns, while high ESG has the opposite effect. One plausible explanation is that high-ESG firms tend to exhibit superior governance practices, making them more likely to create long-term value, while efforts to improve ESG may increase short-term costs, impacting profitability and exerting a negative influence on stock prices temporarily. The results based on financial data also support this conjecture.
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