Is Sustainability Rating Material to the Market?

Claire Economidou, Dimitrios Gounopoulos, Dimitrios Konstantios, Emmanuel Tsiritakis

Research output: Contribution to journalArticlepeer-review

6 Citations (SciVal)
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This study examines whether information about a firm's engagement in environmental, social, and governance (ESG) practices is material to market participants. Evidence from a sample of 1856 initial public offerings (IPOs) by U.S. companies for the 2007–2018 period robustly documents that firms for which there is available ESG performance information prior to going public exhibit higher underpricing due to a positive market response. Such a reaction is validated by agency cost-reducing practices that ESG-rated firms follow prior to the IPO, the superior post-IPO market performance they exhibit in terms of equity financing, and the higher share of financially sophisticated investors they attract compared to their ESG-unrated peers. Overall, our results highlight that it pays off to do good and to have the right investors; however, firms’ good ESG practices need to be visible to the market, through rating practices, to reap the benefits.

Original languageEnglish
Pages (from-to)127-179
Number of pages53
JournalFinancial Management
Issue number1
Early online date21 Jul 2022
Publication statusPublished - 1 Mar 2023

Bibliographical note

Funding Information:
We are grateful to the Editor (Rajkamal Iyer) and an anonymous referee for their detailed and insightful comments. We also thank Seraina Anagnostopoulou, Angelos Atzoulatos, Thomas Chemmanur, Si Cheng, Shaun Fitzgibbons, Reynolds Holdings Abraham Lioui, Nikos Paltalidis, Dimitrios Papanikolaou (the Editor of Journal of Financial Economics), Lase Heje Pederson, Lukasz Pomorski, and George Serapheim; seminar participants from the University of Birmingham, University of Cardiff, University of Piraeus, and University of York; and conference participants at the Financial Management Association (FMA) for their helpful comments. We also thank the CLS Blue Sky Blog of the University of Columbia and the FinReg Blog of Duke University for valuable feedback.


  • environmental social governance (ESG)
  • firm valuation
  • initial public offering (IPO)
  • market performance
  • sustainability

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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