Stock Returns, <scp>ESG</scp> Performance and Divergence of Social Attention

ABSTRACT Growing social attention has become an increasingly salient force shaping firms' sustainable development. However, the impacts of divergent social attention remain unclear. By categorizing social attention into retail attention and public attention, this study examines their distinct impacts on stock returns and environmental, social, and governance (ESG) performance. Retail attention temporarily boosts stock returns by reducing information asymmetry but leads to long‐term decreases in returns as the effect diminishes, while public attention consistently results in a decline in stock returns over time. The study reveals an inverted U‐shaped relationship between social attention and ESG performance. In sub‐dimensions, retail attention works on the governance pillar while public attention focuses more on both the social and governance pillars. Moreover, high levels of social attention do not improve green development; instead, they reduce stock returns of brown firms. This study provides a feasible solution on how firms respond to the impact of social attention in pursuit of sustainable transition.