ESG Score Changes and Stock Price Reactions : an event study of stock market reactions to changes in Thomson Reuters’ ESG Score in the Nordic region

2020

This thesis investigates whether ESG Score announcements by Thomson Reuters present

new information to investors in the Nordic region. The data set consists of 1278 unique

events for 309 unique firms publicly noted in either Sweden, Denmark, Norway or Finland

in the time period from 2011 to 2020. ESG Score announcements are viewed relative

to the score from the previous year, and segmented into positive, negative, and neutral

events based on the magnitude of change. Positive events have a year-on-year change

of at least 10.61 percent, while negative events have a year-on-year change of less than

-2.77 percent. We apply event study methodology and define a test battery consisting

of a parametric and a non-parametric test, yielding a test battery robust to flaws in our

data set. We found evidence of positive abnormal stock price reactions in days prior to

the announcement of both positive and negative events. Therefore, we find evidence that

the ESG Score might bring new information to investors. Furthermore, probit regressions

are used to examine whether firm characteristics correlate with stock price reactions. We

find evidence that smaller firms have a higher likelihood of positive abnormal stock price

reactions in days prior to positive and negative events. Moreover, positive events dated

2017 or later, have a higher likelihood of positive stock price reactions in the days prior to

the events. The same effect, meaning a positive relationship between the likelihood of

positive abnormal price reactions and events dated 2017 or later, is also present for the

day prior to negative events.

Keywords – ESG Score, event study, firm characteristics, probit regression.