ESF Seminar Series with Onur Tosun (Cardiff University)

Heterogeneity in Investor Reaction to MNE’s ESG Incidents

Onur Kemal Tosun

Abstract

We study whether investors react differently to multinational enterprises’ (MNEs) ESG incidents across countries. We use a novel “Perception Index” to measure how domestic investors view other countries, based on their economic strength and legal power. Examining firms in 30 countries with the most ESG incidents for 2007-2022, we reveal heterogeneity in traders’ reaction to such incidents through cumulative abnormal returns (CAR). Guided by the Institutional Theory, we show MNEs face up to 0.9% greater negative daily CAR when investors perceive the incident country as legally and economically superior to others, including their home country. These findings document limits to “home bias”. Granular analyses indicate that neither severity and reach of incidents nor cultural aspects e.g., egalitarianism and trust, change investors’ trading behavior while religion seems to be a significant factor, and such heterogenous reaction is particularly evident for recurring cases and human rights incidents.