Beyond the headlines: how analyst coverage mediates ESG controversies' impact in South Africa

Purpose This study investigates the mediating role of analyst coverage on the relationship between ESG (environmental, social and governance) controversies and firm value while testing the channel's consistency. Design/methodology/approach The study employs Driscoll and Kraay's panel-corrected standard errors model with fixed effects on a sample of 80 non-financial firms listed on the Johannesburg Stock Exchange (JSE) from 2012 to 2024 to test for mediation. Findings The analysis first reveals a significant negative relationship between ESG controversies and firm value. However, the negative relationship is partially mediated by analyst coverage. The result identifies ESG controversies as negative signals that prompt analyst withdrawal and further reduce firm value. The mediating effect is robust to the Bootstrap and Sobel test, as well as the Propensity Score Matching. The heterogeneity test reveals a more pronounced mediating effect for environmental controversies. Research limitations/implications This study establishes analyst coverage as a mediator in the South African context, limiting direct generalizability to other regulatory or emerging-market environments where information dynamics differ. To build on this, future multi-country studies should test key contingencies, such as whether this mediation effect is stronger in weaker disclosure regimes where analysts’ informational role is more critical. Practical implications Corporate leadership must adopt a differentiated, prioritized ESG risk mitigation strategy, as financial markets penalize distinct types of controversy through analyst coverage with varying severity. In addition, investors, particularly institutional asset owners, should monitor changes in analyst coverage as a leading indicator of ESG-related financial risk and engage with companies to improve transparency before coverage is withdrawn. Originality/value As prior studies have failed to explore analyst coverage as a mediator of the relationship between ESG controversies and firm value, our research offers a fresh perspective by emphasizing the importance of analyst coverage while testing for channel consistency.