Environmental, social and governance performance and equity mispricing: Does embedded information mediation matter?

We examine how environmental, social and governance (ESG) performance influences equity mispricing, based on a sample of listed firms in China from 2009 to 2022. We find that ESG performance alleviates equity mispricing, and the findings remain consistent after several robustness checks. We also analyze the role of different types of embedded information mediation (e.g., analysts, institutional investors, and auditors) in the relationship between ESG performance and equity mispricing. We find that ESG performance can alleviate equity mispricing by improving the accuracy and consistency of analyst forecasting, rational investment of institutional investors, and audit quality. We also find that ESG inconsistency over time can hinder the negative relationship between ESG performance and equity mispricing.