THE IMPACT OF ESG SCORE ON SHAREHOLDER WEALTH CREATION VIA DIVESTITURE: AN EMPIRICAL ANALYSIS

Authors:

Mr. Arjun Rana , Dr. Meena Sharma

Keywords:

Divestitures, ESG, Investing Strategy, Sustainability, Sustainable finance.

Abstract:

As Environmental, social, and governance (ESG) factors start to play an important role in corporate decision-making, it becomes important to study the impact of divestiture announcements on shareholders' wealth creation in low versus high ESG-rated companies. The study looks into the differences in cumulative average abnormal return (CAAR) of two sets of companies, the ones that occupy the top ten positions in the ESG ranking and those that occupy the bottom ten positions in the same ESG score and ranking framework of companies. The study’s period was from 1995 to 2020. The study serves as a basis for investors to make better decisions on whether to invest in a divesting company with a high ESG score or a low one to maximize their wealth creation via holding or selling that stock of the divestment announcing company. The findings of this study would contribute to the financial implications of ESG scores.

PDF