IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v66y2024ics1544612324007165.html
   My bibliography  Save this article

ESG combined score effects on stock performance of S&P 500-listed firms

Author

Listed:
  • Cheng, Shi
  • Huang, Shan

Abstract

The influence of ESG combined scores on the stock performance (excess return, volatility, and liquidity) of S&P 500-listed firms was examined from June 2013 to May 2023. Ordinary least squares and heterogeneity analyses were used, with robustness checks performed through the use of endogenous treatment and fixed-effects models. Results indicated that ESG combined scores are negatively correlated with returns and liquidity but positively correlated with volatility. The stocks of low-ESG firms were more ESG-sensitive than those of high-ESG firms. The impact of COVID-19 on stock price volatility was also considerable. The results contradicted the view that ESG enhances market performance, highlighting the need for active, sustained stakeholder engagement concerning ESG practices.

Suggested Citation

  • Cheng, Shi & Huang, Shan, 2024. "ESG combined score effects on stock performance of S&P 500-listed firms," Finance Research Letters, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finlet:v:66:y:2024:i:c:s1544612324007165
    DOI: 10.1016/j.frl.2024.105686
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324007165
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.105686?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. Bruna, Maria Giuseppina & Loprevite, Salvatore & Raucci, Domenico & Ricca, Bruno & Rupo, Daniela, 2022. "Investigating the marginal impact of ESG results on corporate financial performance," Finance Research Letters, Elsevier, vol. 47(PA).
    2. Dongyi Zhou & Rui Zhou, 2021. "ESG Performance and Stock Price Volatility in Public Health Crisis: Evidence from COVID-19 Pandemic," IJERPH, MDPI, vol. 19(1), pages 1-15, December.
    3. Pascal Nguyen & Anna Nguyen, 2015. "The effect of corporate social responsibility on firm risk," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 11(2), pages 324-339, June.
    4. Liu, Benjamin & Johl, Shireenjit & Lasantha, Ruwan, 2023. "ESG scores and cash holdings: The role of disciplinary trading," Finance Research Letters, Elsevier, vol. 55(PA).
    5. Michael Spence, 2002. "Signaling in Retrospect and the Informational Structure of Markets," American Economic Review, American Economic Association, vol. 92(3), pages 434-459, June.
    6. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    7. Karthik Balakrishnan & Mary Brooke Billings & Bryan Kelly & Alexander Ljungqvist, 2014. "Shaping Liquidity: On the Causal Effects of Voluntary Disclosure," Journal of Finance, American Finance Association, vol. 69(5), pages 2237-2278, October.
    8. Wang, Juxian & Ma, Mengdi & Dong, Tianyi & Zhang, Zheyuan, 2023. "Do ESG ratings promote corporate green innovation? A quasi-natural experiment based on SynTao Green Finance's ESG ratings," International Review of Financial Analysis, Elsevier, vol. 87(C).
    9. Ignatov, Konstantin, 2023. "When ESG talks: ESG tone of 10-K reports and its significance to stock markets," International Review of Financial Analysis, Elsevier, vol. 89(C).
    10. Marta Cominetti & Peter Seele, 2016. "Hard soft law or soft hard law? A content analysis of CSR guidelines typologized along hybrid legal status," Sustainability Nexus Forum, Springer, vol. 24(2), pages 127-140, November.
    11. Christopher C Geczy & Robert F Stambaugh & David Levin, 2021. "Investing in Socially Responsible Mutual Funds [Should investors avoid all actively managed mutual funds? A study in Bayesian performance evaluation]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 11(2), pages 309-351.
    12. Hamzeh F. Assous, 2022. "Saudi Green Banks and Stock Return Volatility: GLE Algorithm and Neural Network Models," Economies, MDPI, vol. 10(10), pages 1-18, October.
    13. Schiemann, Frank & Tietmeyer, Raphael, 2022. "ESG Controversies, ESG Disclosure and Analyst Forecast Accuracy," International Review of Financial Analysis, Elsevier, vol. 84(C).
    14. Tsang, Albert & Frost, Tracie & Cao, Huijuan, 2023. "Environmental, Social, and Governance (ESG) disclosure: A literature review," The British Accounting Review, Elsevier, vol. 55(1).
    15. Florian Berg & Julian F Kölbel & Roberto Rigobon, 2022. "Aggregate Confusion: The Divergence of ESG Ratings [Corporate social responsibility and firm risk: theory and empirical evidence]," Review of Finance, European Finance Association, vol. 26(6), pages 1315-1344.
    16. Lashkaripour, Mohammadhossein, 2023. "ESG tail risk: The Covid-19 market crash analysis," Finance Research Letters, Elsevier, vol. 53(C).
    17. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    18. Ciciretti, Rocco & Dalò, Ambrogio & Dam, Lammertjan, 2023. "The contributions of betas versus characteristics to the ESG premium," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 104-124.
    19. Hong, Harrison & Kacperczyk, Marcin, 2009. "The price of sin: The effects of social norms on markets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 15-36, July.
    20. Amir Barnea & Amir Rubin, 2010. "Corporate Social Responsibility as a Conflict Between Shareholders," Journal of Business Ethics, Springer, vol. 97(1), pages 71-86, November.
    21. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    22. Chen, Hong-Yi & Yang, Sharon S., 2020. "Do Investors exaggerate corporate ESG information? Evidence of the ESG momentum effect in the Taiwanese market," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    23. Ghassan H. Mardini, 2022. "ESG factors and corporate financial performance," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 14(3), pages 247-264.
    24. Alok Kumar & Charles M.C. Lee, 2006. "Retail Investor Sentiment and Return Comovements," Journal of Finance, American Finance Association, vol. 61(5), pages 2451-2486, October.
    25. Aaron K. Chatterji & Rodolphe Durand & David I. Levine & Samuel Touboul, 2016. "Do ratings of firms converge? Implications for managers, investors and strategy researchers," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1597-1614, August.
    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. Ubeda, Fernando & Mendez, Alvaro & Forcadell, Francisco Javier & López, Belén, 2024. "How socially sustainable multinational banks promote financial inclusion in developing countries," Research in International Business and Finance, Elsevier, vol. 71(C).
    2. Raminta Vaitiekuniene & Kristina Sutiene & Rytis Krusinskas, 2024. "Factors Affecting the Sustainability of Corporates in Polluting Sectors," Sustainability, MDPI, vol. 16(20), pages 1-12, October.

    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. Qian, Binsheng & Poshakwale, Sunil & Tan, Yusen, 2024. "‘E’ of ESG and firm performance: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    2. Staněk Gyönyör, Lucie & Horváth, Matúš, 2024. "Does ESG affect stock market dependence? An empirical exploration of S&P 1200 companies shows the divergent nature of E–S–G pillars," Research in International Business and Finance, Elsevier, vol. 69(C).
    3. Gregor Dorfleitner & Christian Kreuzer & Christian Sparrer, 2020. "ESG controversies and controversial ESG: about silent saints and small sinners," Journal of Asset Management, Palgrave Macmillan, vol. 21(5), pages 393-412, September.
    4. Luo, Di & Farag, Hisham, 2024. "ESG and aggregate disagreement," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    5. Muck, Matthias & Schmidl, Thomas, 2024. "Comparing ESG score weighting approaches and stock performance differentiation," Finance Research Letters, Elsevier, vol. 67(PB).
    6. Breitmayer, Bastian & Massari, Filippo & Pelster, Matthias, 2019. "Swarm intelligence? Stock opinions of the crowd and stock returns," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 443-464.
    7. Wang, Haijun & Jiao, Shuaipeng & Ge, Chen & Sun, Guanglin, 2024. "Corporate ESG rating divergence and excess stock returns," Energy Economics, Elsevier, vol. 129(C).
    8. Cheng, Louis T.W. & Cheong, Tsun Se & Wojewodzki, Michal & Chui, David, 2025. "The effect of ESG divergence on the financial performance of Hong Kong-listed firms: An artificial neural network approach," Research in International Business and Finance, Elsevier, vol. 73(PA).
    9. Becchetti, Leonardo & Ciciretti, Rocco & Dalò, Ambrogio, 2018. "Fishing the Corporate Social Responsibility risk factors," Journal of Financial Stability, Elsevier, vol. 37(C), pages 25-48.
    10. Liu, Xufeng & Wan, Die, 2023. "Retail investor trading and ESG pricing in China," Research in International Business and Finance, Elsevier, vol. 65(C).
    11. Roman Kräussl & Tobi Oladiran & Denitsa Stefanova, 2024. "A review on ESG investing: Investors’ expectations, beliefs and perceptions," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 476-502, April.
    12. Kleffel, Philipp & Muck, Matthias, 2024. "The confusion of taste and consumption: Evidence from a stated-choice experiment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 43(C).
    13. Carta, Nicola & Carta, Matteo & Rigoni, Ugo, 2024. "The countdown to carbon neutrality: Implications for passive investors," Economics Letters, Elsevier, vol. 244(C).
    14. Danny Zhao‐Xiang Huang, 2022. "Environmental, social and governance factors and assessing firm value: valuation, signalling and stakeholder perspectives," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1983-2010, April.
    15. Jongmoo Jay Choi & Hoje Jo & Jimi Kim & Moo Sung Kim, 2018. "Business Groups and Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 153(4), pages 931-954, December.
    16. John H. Cochrane, 1999. "New facts in finance," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23(Q III), pages 36-58.
    17. Ciciretti, Rocco & Dalò, Ambrogio & Dam, Lammertjan, 2023. "The contributions of betas versus characteristics to the ESG premium," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 104-124.
    18. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2017. "Research in finance: A review of influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 188-199.
    19. Cauthorn, Thomas & Dumrose, Maurice & Eckert, Julia & Klein, Christian & Zwergel, Bernhard, 2023. "Rating changes revisited: New evidence on short-term ESG momentum," Finance Research Letters, Elsevier, vol. 54(C).
    20. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, March.

    More about this item

    Keywords

    ESG combined score; Stock performance; S&P 500 listed firms;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • B16 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Quantitative and Mathematical

    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:finlet:v:66:y:2024:i:c:s1544612324007165. 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.elsevier.com/locate/frl .

    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.