Stock Price Synchronicity and Material Sustainability Information

by Jody Grewal, Clarissa Hauptmann, and George Serafeim

Overview — This paper seeks to understand and provide evidence on the characteristics of emerging accounting standards for sustainability information. Given that a large number of institutional investors seek sustainability data and have committed to using it, it is increasingly important to develop a robust accounting infrastructure for the reporting of such information.

Author Abstract

We examine if, and under what conditions, disclosure of sustainability information identified as investor relevant by market-driven innovations in accounting standard setting is associated with stock prices reflecting more firm-specific information and thereby lower synchronicity with market and industry returns. We find that firms voluntarily disclosing more sustainability information, identified as material by the Sustainability Accounting Standards Board (SASB), have lower stock price synchronicity. This result is stronger for firms with higher exposure to sustainability issues, institutional and socially responsible investment fund ownership, and coverage from analysts with less firm-specific experience and lower portfolio complexity. Moreover, we find intra-industry information transfers to firms with low sustainability disclosure within industries with high sustainability disclosure. We also document that sustainability information not identified by the accounting standard setting process is not associated with stock price synchronicity.

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