IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v79y2023icp702-712.html
   My bibliography  Save this article

The Effect of ESG performance on the stock market during the COVID-19 Pandemic — Evidence from Japan

Author

Listed:
  • Liu, Lian
  • Nemoto, Naoko
  • Lu, Changrong

Abstract

Environmental, social, and governance (ESG) practices can play a crucial role in promoting green recovery by fostering sustainable and responsible economic growth. Based on a novel dataset of Japanese listed companies from January 2016 to December 2021, this study examines the effect of corporate (ESG) performance on the Japanese stock market during the COVID-19 pandemic. We contribute additional evidence to the literature by exploring the unique role of ESG factors that affect stock markets during economic downturns. The results of the study show a positive association between corporate ESG performance and stock returns during the COVID-19 period. Furthermore, we demonstrate that strong ESG performance contributed to enhanced stock market stability and increased market liquidity in Japan during the COVID-19 pandemic. These results provide a rationale for implementing supportive measures and regulations that encourage companies to adopt and disclose robust ESG practices. By doing so, they can contribute to the stability and liquidity of the stock market and fostering sustainable economic growth.

Suggested Citation

  • Liu, Lian & Nemoto, Naoko & Lu, Changrong, 2023. "The Effect of ESG performance on the stock market during the COVID-19 Pandemic — Evidence from Japan," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 702-712.
    • Handle: RePEc:eee:ecanpo:v:79:y:2023:i:c:p:702-712
    DOI: 10.1016/j.eap.2023.06.038
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592623001601
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eap.2023.06.038?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Sandra A. Waddock & Samuel B. Graves, 1997. "The Corporate Social Performance–Financial Performance Link," Strategic Management Journal, Wiley Blackwell, vol. 18(4), pages 303-319, April.
    2. Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(3), pages 387-409, July.
    3. Jun, Sang-Gyung & Marathe, Achla & Shawky, Hany A., 2003. "Liquidity and stock returns in emerging equity markets," Emerging Markets Review, Elsevier, vol. 4(1), pages 1-24, March.
    4. Samuel M. Hartzmark & Abigail B. Sussman, 2019. "Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows," Journal of Finance, American Finance Association, vol. 74(6), pages 2789-2837, December.
    5. Stefano Ramelli & Alexander F Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 622-655.
    6. William Schwert, G., 2002. "Stock volatility in the new millennium: how wacky is Nasdaq?," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 3-26, January.
    7. N. C. Ashwin Kumar & Camille Smith & Leïla Badis & Nan Wang & Paz Ambrosy & Rodrigo Tavares, 2016. "ESG factors and risk-adjusted performance: a new quantitative model," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 6(4), pages 292-300, October.
    8. Bae, Kee-Hong & El Ghoul, Sadok & Gong, Zhaoran (Jason) & Guedhami, Omrane, 2021. "Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic," Journal of Corporate Finance, Elsevier, vol. 67(C).
    9. Crifo, Patricia & Diaye, Marc-Arthur & Oueghlissi, Rim, 2017. "The effect of countries’ ESG ratings on their sovereign borrowing costs," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 13-20.
    10. Weiqing Li & Fengsheng Chien & Hafiz Waqas Kamran & Talla M Aldeehani & Muhammad Sadiq & Van Chien Nguyen & Farhad Taghizadeh-Hesary, 2022. "The nexus between COVID-19 fear and stock market volatility," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 1765-1785, December.
    11. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
    12. Rui Albuquerque & Yrjo Koskinen & Shuai Yang & Chendi Zhang, 2020. "Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 593-621.
    13. Nils Engelhardt & Jens Ekkenga & Peter Posch, 2021. "ESG Ratings and Stock Performance during the COVID-19 Crisis," Sustainability, MDPI, vol. 13(13), pages 1-15, June.
    14. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    15. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    16. Mona Mortazian, 2022. "Liquidity and Volatility of Stocks Moved from the Main Market to the Alternative Investment Market (AIM)," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(2), pages 195-220, June.
    17. Benson, Karen L. & Humphrey, Jacquelyn E., 2008. "Socially responsible investment funds: Investor reaction to current and past returns," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1850-1859, September.
    18. Kais Bouslah & Lawrence Kryzanowski & Bouchra M’Zali, 2018. "Social Performance and Firm Risk: Impact of the Financial Crisis," Journal of Business Ethics, Springer, vol. 149(3), pages 643-669, May.
    19. Taghizadeh-Hesary, Farhad & Phoumin, Han & Rasoulinezhad, Ehsan, 2023. "Assessment of role of green bond in renewable energy resource development in Japan," Resources Policy, Elsevier, vol. 80(C).
    20. Broadstock, David C. & Chan, Kalok & Cheng, Louis T.W. & Wang, Xiaowei, 2021. "The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China," Finance Research Letters, Elsevier, vol. 38(C).
    21. Karl V. Lins & Henri Servaes & Ane Tamayo, 2017. "Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis," Journal of Finance, American Finance Association, vol. 72(4), pages 1785-1824, August.
    22. Ema Gusheva & Vincent de Gooyert, 2021. "Can We Have Our Cake and Eat It? A Review of the Debate on Green Recovery from the COVID-19 Crisis," Sustainability, MDPI, vol. 13(2), pages 1-16, January.
    23. Erdem, Orhan, 2020. "Freedom and stock market performance during Covid-19 outbreak," Finance Research Letters, Elsevier, vol. 36(C).
    24. Rio Murata & Shigeyuki Hamori, 2021. "ESG Disclosures and Stock Price Crash Risk," JRFM, MDPI, vol. 14(2), pages 1-20, February.
    25. Takahashi, Hidenori & Yamada, Kazuo, 2021. "When the Japanese stock market meets COVID-19: Impact of ownership, China and US exposure, and ESG channels," International Review of Financial Analysis, Elsevier, vol. 74(C).
    26. Elizabeth Demers & Jurian Hendrikse & Philip Joos & Baruch Lev, 2021. "ESG did not immunize stocks during the COVID‐19 crisis, but investments in intangible assets did," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 433-462, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmed El Oubani, 2024. "Investor sentiment and sustainable investment: evidence from North African stock markets," Future Business Journal, Springer, vol. 10(1), pages 1-20, December.
    2. Wu, Hua & Zhang, Ke & Li, Renyu, 2024. "ESG score, analyst coverage and corporate resilience," Finance Research Letters, Elsevier, vol. 62(PB).
    3. Chen, Yongtai & Ren, Yi-Shuai & Narayan, Seema & Huynh, Ngoc Quang Anh, 2024. "Does climate risk impact firms' ESG performance? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 683-695.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bongiovanni, Alessio & Fiandrino, Simona, 2024. "Does firm environmental performance mitigate the market reaction to COVID-19 uncertainty?," Research in International Business and Finance, Elsevier, vol. 68(C).
    2. Rim El Khoury & Nohade Nasrallah & Khaled Hussainey, 2022. "Exploring the performance of responsible companies in G20 during the COVID-19 outbreak," Post-Print hal-03761427, HAL.
    3. Alberto Barroso del Toro & Laura Vivas Crisol & Xavier Tort-Martorell, 2022. "Comparing the Impacts of Sustainability Narratives on American and European Energy Shareholders: A Multi-Event Study Analysing Reactions to News before and during COVID-19," Sustainability, MDPI, vol. 14(23), pages 1-18, November.
    4. Agliardi, Elettra & Alexopoulos, Thomas & Karvelas, Kleanthis, 2023. "The environmental pillar of ESG and financial performance: A portfolio analysis," Energy Economics, Elsevier, vol. 120(C).
    5. Yi, Yuyang & Zhang, Zongyi & Xiang, Cheng, 2022. "The value of CSR during the COVID-19 crisis: Evidence from Chinese firms," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    6. Giovanni Cardillo & Ennio Bendinelli & Giuseppe Torluccio, 2023. "COVID‐19, ESG investing, and the resilience of more sustainable stocks: Evidence from European firms," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 602-623, January.
    7. Fariha Jahan & Jungmu Kim, 2023. "Does the Shield Effect of CSR Work in Crises? Evidence in Korea," Sustainability, MDPI, vol. 15(11), pages 1-18, June.
    8. Rouatbi, Wael & Demir, Ender & Kizys, Renatas & Zaremba, Adam, 2021. "Immunizing markets against the pandemic: COVID-19 vaccinations and stock volatility around the world," International Review of Financial Analysis, Elsevier, vol. 77(C).
    9. Andrea Jacob & Martin Nerlinger, 2021. "Investors’ Delight? Climate Risk in Stock Valuation during COVID-19 and Beyond," Sustainability, MDPI, vol. 13(21), pages 1-17, November.
    10. Costanza Torricelli & Beatrice Bertelli, 2022. "ESG screening strategies and portfolio performance: how do they fare in periods of financial distress?," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0087, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    11. Xu, Nana & Chen, Jiaqi & Zhou, Fangzhao & Dong, Qing & He, Zhifang, 2023. "Corporate ESG and resilience of stock prices in the context of the COVID-19 pandemic in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    12. Nguyen, Harvey & Pham, Anh Viet & Pham, Man Duy (Marty) & Pham, Mia Hang, 2023. "Business resilience: Lessons from government responses to the global COVID-19 crisis," International Business Review, Elsevier, vol. 32(5).
    13. Lestari, Jenjang Sri & Frömmel, Michael, 2024. "Socially responsible investments: doing good while doing well in developed versus emerging markets?," Research in International Business and Finance, Elsevier, vol. 69(C).
    14. Qian, Kun & Shi, Bingjie & Song, Yunling & Wu, Hao, 2023. "ESG performance and loan contracting in an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    15. D’Ercole, Francesco & Wagner, Alexander F., 2023. "The green energy transition and the 2023 Banking Crisis," Finance Research Letters, Elsevier, vol. 58(PC).
    16. Lei, Heng & Xue, Minggao & Liu, Huiling & Ye, Jing, 2023. "Precious metal as a safe haven for global ESG stocks: Portfolio implications for socially responsible investing," Resources Policy, Elsevier, vol. 80(C).
    17. Quang Trinh, Vu & Duong Cao, Ngan & Li, Teng & Elnahass, Marwa, 2023. "Social capital, trust, and bank tail risk: The value of ESG rating and the effects of crisis shocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    18. Song, Yunling & Wu, Hao & Ma, Yan, 2023. "Does ESG performance affect audit pricing? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    19. Yang, Junhua & Agyei, Samuel Kwaku & Bossman, Ahmed & Gubareva, Mariya & Marfo-Yiadom, Edward, 2024. "Energy, metals, market uncertainties, and ESG stocks: Analysing predictability and safe havens," The North American Journal of Economics and Finance, Elsevier, vol. 69(PB).
    20. Bax, Karoline & Sahin, Özge & Czado, Claudia & Paterlini, Sandra, 2023. "ESG, risk, and (tail) dependence," International Review of Financial Analysis, Elsevier, vol. 87(C).

    More about this item

    Keywords

    ESG performance; Stock market; COVID-19; Japan;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:79:y:2023:i:c:p:702-712. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.