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The icing on the cake: ESG effect on the quality factor portfolios

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  • Lu, Chia-Wu
  • Wu, Hsueh-Ling
  • Su, Yu-Hsuan

Abstract

This study investigates the effect of Environmental, Social, and Governance (ESG) on the quality portfolios in Taiwanese market. The quality factor, which aggregates the character of profitability, growth, safety, and payout, is one of crucial factors in Warren Buffet's investment strategy suggested by literature. Our empirical results show that the beneficial effect of ESG is not prevailing, only significantly positively for the high-quality stocks, rather than the lower-quality ones, implying the market investors' willingness to pay a premium for ESG only for high quality firms. This “icing on the cake” phenomenon exists both on stock returns and also Tobin's Q.

Suggested Citation

  • Lu, Chia-Wu & Wu, Hsueh-Ling & Su, Yu-Hsuan, 2024. "The icing on the cake: ESG effect on the quality factor portfolios," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013333
    DOI: 10.1016/j.frl.2024.106304
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