How Do Companies Respond to Investors’ Environmental, Social, and Governance Sentiment?: Empirical Study from a Catering Perspective

Author Information

Rong Zhou, China University of Geosciences, China
Jundong Hou, China University of Geosciences, China

Abstract

In the post-epidemic era, ESG has become even more critical to corporate sustainability, helping companies adapt to changing environments, transform business models, and enhance long-term competitiveness. Increasingly, companies are adopting environmental, social, and governance (ESG) reports to communicate ESG practices to the outside world, especially to attract investors. Against this background, this study examines whether corporate ESG disclosure caters to investors' ESG sentiment. This is important because investors are essential stakeholders, and prior literature has failed to explore why and how corporate ESG decisions respond to investor sentiment from a catering perspective. With catering theory, emotional contagion theory, and institutional logics theory, we explore the motivation, mechanisms, approach, and regulatory measures of corporate ESG disclosure catering. The results highlighted that corporate ESG disclosure caters to investor sentiment, and the higher the investor ESG sentiment, the greater the degree of corporate disclosure catering. Investor ESG sentiment influences the generation of executive overconfidence, further resulting in ESG disclosure catering. Furthermore, top-down institutional and bottom-up information governance can weaken the impact of investor ESG sentiment on disclosure catering, which provides a comprehensive governance reference for regulating ESG disclosure. Additional analyses suggest that corporate ESG disclosure catering does not fulfill the original catering intention to promote stock premium or reputation premium. Fundamentally, our study provides novel evidence that corporate ESG disclosure catering is a strategic action driven by investor sentiment. These findings have significant implications for mitigating the irrationality of investors and companies in responding to changing situations and optimizing policymakers' governance instruments.

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• Category: Economics and Management

Posted by James Alexander Gordon

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