ESG Risks and the Value Relevance of Current and Historical Earnings

Mingying Cheng, Joseph A. Micale

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


We investigate whether independent, third-party assessments of firms’ Environmental, Social, and Governance (ESG) risk exposures provide forward-looking information content to capital market participants by evaluating whether these ESG risks have a moderating effect on the ability of earnings and the book values of equity to predict investors’ expectations of the present value of future cash flows. We find that firms’ higher ESG risk exposure increases the association between current earnings and firm values, while decreasing the relevance of book values of equity (i.e., historical earnings). We find that this effect is strongest for firms with the highest levels of risk exposure and following large changes to ESG risk exposures. In additional analyses, we disaggregate ESG risk exposure and while we find that each component of ESG has predictive power consistent with the main findings, governance risks dominant the results in head to head specifications. Taken together, our findings suggest that governance risk exposures provide forward-looking information content to investors when they evaluate the ability of current earnings to predict future cash flows. Our results are robust to several measures of ESG risk exposure, entropy balancing specifications, and exogenous shocks to ESG attention following global environmental and social justice initiatives.

Original languageEnglish (US)
Pages (from-to)207-237
Number of pages31
JournalFinancial Markets, Institutions and Instruments
Issue number5
StatePublished - Dec 2022

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance
  • Finance


  • ESG
  • Earnings
  • Market Pricing
  • RepRisk
  • Value Relevance


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