The Relation between ESG Activities and Investors’ Heterogeneous Beliefs

We hypothesize that ESG activities would have a negative relation with investors’ heterogeneous beliefs and conduct an empirical test. We use trading volume as a proxy for investors’ heterogeneous beliefs. As a result of the analysis, ESG activities are found to have a negative (－) relation with trading volume. This indicates that investors believe that companies that actively perform ESG activities have a high incentive to produce high accounting information. In other words, companies actively performing ESG activities are judged to have a low－trading volume because information risk is low. We conduct additional tests by separating ESG components into Environmental responsibility (E), Social responsibility (S), and Governance (G). As a result of additional tests, the governance index (G) is found to have a negative (－) relation with trading volume, but Environmental responsibility (E) and Social responsibility (S) are found to have no relation with trading volume. According to the results of these additional tests, the main result is the effect of Governance among ESG components. This study is expected to have a contribution in that it analyzes how investors judge ESG activities when making investment decisions. In addition, this study is judged to have a contribution in that it presents empirical data that companies with high levels of ESG activities can have low information risks perceived by investors.