Investor reaction to ESG news sentiment : evidence from South Africa

Purpose Utilising a database that distinctly classifies firm-level ESG (environmental, social and governance) news sentiment as positive or negative, the authors examine the information flow between the two types of ESG news sentiment and stock returns for 20 companies listed on the Johannesburg Stock Exchange between 2015 and 2021. Design/methodology/approach The authors use Shannonian transfer entropy to examine whether information significantly flows from ESG news sentiment to stock returns and a modified event study analysis to establish how stock prices react to changes in the two types of ESG sentiment. Findings Using Shannonian transfer entropy, the authors find that for the majority of the companies studied, information flows from the positive ESG news sentiment to stock returns while only a minority of the companies exhibit significant information flow from negative ESG news sentiment to returns. Furthermore, the study's findings show significantly positive (negative) abnormal returns on the event date and beyond for both upgrades and downgrades in positive ESG news sentiment. Originality/value This study is among the first in an African context to investigate the impact of ESG news sentiment on stock market returns at high frequencies.