Shifting Tides: the Effect of Institutional Divestments on the Global Market

Banerjee, Rhythm (2024): Shifting Tides: the Effect of Institutional Divestments on the Global Market.

Abstract

This paper investigates the impact of ESG divestments on the share prices of listed equities. The study employs a two-fold approach: (i) an event study analyzing divestment announcements and (ii) a panel regression covering a longer divestment period, considering the actual purchase/sale of shares. We use a diversified historical portfolio of the Norges Bank Investment Management (NBIM), the world’s largest Sovereign Wealth Fund. Incorporating sectoral and dynamic effects, the study captures the short- to medium-term effects of exclusion and non-exclusion on stock prices. We find three significant results. First, the exclusion of firms in the oil and gas industry substantially negatively impacts their share prices. Second, if a company belongs to the same sector as an excluded firm, it experiences a negative effect on stock prices from an exclusion shock. Importantly, exclusion announcements lower prices more than actual divestments. Lastly, divestitures by NBIM have the opposite effect on firms' share prices in the Electric Utilities and Independent Power Producers’ (EUIPP) sector, increasing their share price over a year. However, this effect is narrow and limited to this specific sector.

• Item Type: MPRA Paper
• Language: English
• Keywords: Institutional investors; Sustainable finance; Divestments; Portfolio balance
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

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