Stakeholder relations and stock returns

On errors in investors' expectations and learning

A.C.T. Borgers, J.M.M. Derwall, C.G. Koedijk, J.R. Ter Horst

Research output: Contribution to journalArticleScientificpeer-review

Abstract

A significant number of institutional investors publicly state the belief that corporate stakeholder relations are associated with firm value in a manner that the financial market fails to understand. We investigate whether stakeholder information predicted risk-adjusted returns due to errors in investors' expectations and ultimately ceased to do so as attention for such information increased. We build a stakeholder-relations index (SI) for a wide range of U.S. firms over the period 1992–2009 and provide evidence that the SI explained errors in investors' expectations about firms' future earnings. The SI was positively associated with long-term risk-adjusted returns, earnings announcement returns, and errors in analysts' earnings forecasts over the period 1992–2004. However, as attention for stakeholder issues became more widespread, subsequently, these relationships diminished considerably. The results are consistent with the idea that increased investor attention for stakeholder issues eventually eliminates mispricing.
Original languageEnglish
Pages (from-to)159-175
JournalJournal of Empirical Finance
Volume22
Issue number1
DOIs
Publication statusPublished - 2013

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Stakeholder relations
Investors
Stock returns
Stakeholders
Risk-adjusted returns
Earnings announcements
Institutional investors
Financial markets
Announcement returns
Analysts' earnings forecasts
Information risk
Mispricing
Firm value

Cite this

Borgers, A.C.T. ; Derwall, J.M.M. ; Koedijk, C.G. ; Ter Horst, J.R. / Stakeholder relations and stock returns : On errors in investors' expectations and learning. In: Journal of Empirical Finance. 2013 ; Vol. 22, No. 1. pp. 159-175.
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Stakeholder relations and stock returns : On errors in investors' expectations and learning. / Borgers, A.C.T.; Derwall, J.M.M.; Koedijk, C.G.; Ter Horst, J.R.

In: Journal of Empirical Finance, Vol. 22, No. 1, 2013, p. 159-175.

Research output: Contribution to journalArticleScientificpeer-review

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