| Author Name | KEIDA Masayuki (Rissho University) / TAKEDA Yosuke (Sophia University) |
|---|---|
| Creation Date/NO. | January 2024 24-E-002 |
| Research Project | Heterogeneity across Agents and Sustainability of the Japanese Economy |
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Abstract
Environmental, social, and governance (ESG) investing in equity markets has surged for corporate firms, whose managerial efforts are disclosed and evaluated in favor of environmental, social, or governance-oriented issues. Since managerial information is costly for individual investors to acquire and process, “exit or voice” activities of speculators through market monitoring is necessary to reduce uncertainty associated with firms’ managerial performance (Holmstrӧm and Tirole, 1993; Tirole, 2006). This study examines Japan’s Government Pension Investment Fund (GPIF), which announced that it selected some ESG indices for Japanese equities and commenced passive investment tracking them. We estimate the effects of several announcements made by GPIF on the equity prices of the monitored firms, empirically showing the effects of informational efficiency in market monitoring on share prices in a case of positive screening through GPIF’s choice over the ESG indices based on public information. The panel regressions indicate that the GPIF’s soft voice influencing the corporations’ pro-ESG managerial efforts was loud enough to cause temporary increases in stock prices. However, the transient effects of the GPIF’s market monitoring are contradictory in that the effects are absent for the corporations whose sustainability reports reveal information on their positive ESG-related performances. Our finding that the ESG ratings accurately reflect the content of sustainability reports is supportive of the GPIF’s objectives of positive screening based on public information in choosing the ESG indices.
