Environmental, social, and governance performance, analysts’ recommendations, coverage, and earnings forecast accuracy

Abstract

This study investigates whether environmental, social, and governance (ESG) performance influences analysts’ recommendations, analyst coverage, and earnings forecast accuracy. Using a sample of 1,675 nonfinancial firms listed on the Taiwan Stock Exchange (TWSE) and Taipei Exchange (TPEx) from 2016 to 2023, we estimate regression models controlling for firm characteristics, corporate governance attributes, industry fixed effects, and year fixed effects. The results show that overall ESG performance is not significantly associated with analysts’ recommendation ratings, suggesting that analysts continue to rely primarily on traditional financial information when issuing investment recommendations. However, overall ESG performance is positively associated with analyst coverage, indicating that firms with stronger ESG performance attract greater analyst attention and research effort. Further analysis of the three ESG dimensions reveals that environmental performance is positively associated with analysts’ recommendation ratings, consistent with the view that strong environmental performance signals effective risk management and long-term competitiveness. In addition, social performance is negatively associated with both one-year and two-year absolute earnings forecast errors, suggesting that social-related ESG information improves the information environment and enhances analysts’ earnings forecast accuracy. These findings remain robust after controlling for industry and year fixed effects.