Institutional investors' attention to environmental information, trading strategies, and market impacts: Evidence from China

Abstract

Using a large proprietary database of intraday high-frequency trading, we investigate the trading strategies of institutional investors in dealing with the negative environmental event disclosure of listed companies and their impact on markets, aiming to reveal the mechanism of the lack of "green efficiency" in China's capital market from the perspective of institutional investors. The results show that institutional investors react to negative environmental events prior to the announcements, indicating premature information leakage in the market; in addition, their trading behaviors mitigate the immediate effect of negative environmental event announcements on stock price.After the event is disclosed, institutional investors engage in short-term selling and long-term buy and hold. This trading strategy undermines the irrational selling of individual investors in the event of disclosure, short-term decline in stock price, and long-term reversal of market overreaction. In a China context, institutional investors generally take environmental information into consideration. However, they fail to recognize the long-term value effect of negative environmental events and instead cater to trading strategies towards market volatility.

Corporate environmental information disclosure and bank financing: Moderating effect of formal and informal institutions

“…Erwei Xiang https://orcid.org/0000-0001-9950-6148 ENDNOTES 1 While some scholars argue that environmental information disclosure mainly serves as a "legitimation tool" (e.g., Cho & Patten, 2007;Gray et al, 1995), others corroborate that this information disclosure is value relevant (see Al-Tuwaijri et al, 2004;Chen et al, 2018;Clarkson et al, 2011;Cormier & Magnan, 2015;Matsumura et al, 2014;Plumlee et al, 2015;Qiu et al, 2016;Wei et al, 2020). ment being rapidly deteriorated, which pushed China to set out on a transformative journey to tackle pollution.…”

Does it pay to be environmentally responsible? Investigating the effect on the weighted average cost of capital

“…Likewise, equity investors have become more and more sensitive and careful to environmental issues in their capital allocation decisions, too (Krueger et al, 2020; Wei et al, 2020). Therefore, corporate environmental performances are nowadays under continuous scrutiny by capital markets participants.…”

Stakeholder engagement: Investors' environmental risk aversion and corporate earnings

“…In other words, they make their investment decisions based on the firms' business model. Thus, investors who have as their top priority minimizing the environmental impact will invest in industries with as low an environmental impact as possible (Wei et al, 2019). Moreover, unlike conventional investors, environmental investors' consideration for non‐financial information, such as the environmental impact, precedes their consideration for financial information (Xue et al, 2019).…”