Corporate sustainability performance and informativeness of earnings

PurposeWith the growing awareness about the environment and climate, sustainability has gained increased attention of investors. Many investors now factor in the long-term sustainability of successful and responsible companies when making their investment choices. The purpose of this paper is to investigate whether or not the sustainability performance of a company affects the informativeness of its earnings by exploring the mediating effect of sustainability performance on the association between stock returns and earnings changes.Design/methodology/approachUsing a sample of firms for the period 2009–2016 with available sustainability data from TruValue Labs' database, the authors investigate how the sustainability performance of a firm mediates the relationship between stock returns and earnings (changes). The authors use ordinary least squares (OLS) regressions to test their hypotheses.FindingsConsistent with the voluntary disclosure and environmental, social and governance (ESG) performance literature, the authors find that higher sustainability performance improves the stock price informativeness of earnings. The authors find evidence in support of increased earnings response coefficient with increased sustainability performance.Research limitations/implicationsThis study adds to the literature supporting the notion of sustainability investing indicating that sustainability performance of a firm affects the stock price informativeness and predictability of earnings (changes) of the firm.Originality/valueThis study has value for, both, investors and managers regarding the importance of sustainability performance of the firm. Sustainability performance of the firm sends signals to market participants, increasing the informational content of the reported earnings as well as predictability of future earnings.

Skill Acquisition and Data Sales

We develop a data-sales model to study the implications of alternative data for financial markets. Investors acquire skills to process the purchased raw data, and developing such skills is costly and involves considerable uncertainty. The data vendor controls the size of the data sample to influence the precision of the information investors can extract from the purchased data. Price informativeness is hump-shaped in skill-acquisition costs although the cost of capital and return volatility are U-shaped in skill-acquisition costs. Similar patterns can arise for skill mean and volatility. Our analysis suggests that the funds and data industries foster each other. This paper was accepted by Agostino Capponi, finance.

Foreign Investment and Stock Price Informativeness: Evidence From the Shanghai (Shenzhen)–Hong Kong Stock Connect

This article investigates the impact of heterogeneous foreign investment on home market stock price informativeness. Evidence from China’s nascent A-share market shows non-segmented foreign investment reduces firms’ stock return synchronicity, while segmented foreign investment does not. Using the Shanghai (Shenzhen)–Hong Kong Stock Connect program as a natural experiment that exogenously increases non-segmented foreign ownership, we find that synchronicity drops significantly for program stocks relative to the control stocks. Our results are most consistent with an “informed trading” explanation, rather than a “learning” or “governance” explanation. These results have policy implications for stock market liberalization programs.

Effects of Financial Market Information on Firms’ Productivity Under Operating Pressure and Financial Constraints: Evidence From the Chinese Stock Market

Many studies have examined the impact of economic fundamentals on the financial market, but few have explored how financial market information affects the real economy. In this paper, we examine the effects of stock price informativeness on firms’ total factor productivity (TFP) using panel data of Chinese listed manufacturing firms over the period 2007 to 2017. Specifically, we use stock price nonsynchronicity to measure stock price informativeness, and real economic activity efficiency is proxied by the listed firms’ total factor productivity estimated by the LP and ACF methods. We find that stock price informativeness is positively associated with firms’ productivity in China. More importantly, we propose two possible mechanisms to intensify the consequences of stock price informativeness and find that operating pressure and financial constraints can positively intensify the relationship between stock price informativeness and firms’ TFP. As financial information is crucial for sustainable and steady economic growth, our research not only helps to reveal how the financial market promotes economic growth but also helps to provide new ideas for managers and policy-makers to alleviate operating pressure and financing constraints.