Abstract
This study investigates the impact of disclosure processing costs on the utilization of environmental, social, and governance (ESG) information by retail and institutional investors. I posit that retail investors may face challenges in processing ESG textual due to associated integration costs. However, institutional investors can benefit from noisy information by leveraging their better information processing capabilities. Evidence shows that ESG textual reporting positively affects institutional investors' attention and trading activities, but has no discernible impact on retail investors. However, when rating agency converts ESG information into easy-to-understand ranking format, it results in increased (decreased) trading activities among retail (institutional) investors.
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