The Price of Perception: The effect of ESG reputation risk on analysts' target price revisions
Cody Hyman  1@  , Noor Hashim  2@  
1 : University of Central Florida [Orlando]
2 : Lancaster University

Firms that fail to meet environmental, social, and governance (ESG) expectations face reputation risk. We examine whether analyst target price revision magnitude is associated with reputation risk relative to sector peers. This is important because when analysts signal risk through revisions, it can exacerbate market uncertainty. We find a positive association between revision size and reputation risk relative to sector peers, particularly for downward revisions. Further tests show that this relation is greater for firms in industries with greater ESG impact, particularly when that impact is more salient (i.e. for firms operating in environmentally impactful industries). We find that firms in environmentally impactful industries attempt to mitigate their exposure to reputation risk by signaling board environmental oversight, but these efforts do not reduce the effect of reputation risk on analyst target price revisions. Our results highlight the importance of industry context for reputation risk exposure on analysts' target price revisions.


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