ESG performance and seasoned equity offering discount – Evidence from investor share subscriptions in China

Abstract

This study examines the relationship between firms' environmental, social, and governance (ESG) performance and the pricing of their seasoned equity offerings (SEO). Using a unique dataset of Chinese investors' subscriptions to SEO shares, we find that investors tend to place a higher value on firms with better ESG performance, leading to a lower SEO discount. The negative relationship between ESG performance and SEO discount is particularly notable for firms with higher level of information asymmetry and weaker governance during the offerings. Moreover, we find that the ESG effect on SEO discounts is further amplified by the government's environmental protection initiatives in 2020. Overall, our study suggests that engagement in ESG practices can lead to reduced discounts for firms during the SEO process.