IDEAS home Printed from https://ideas.repec.org/a/pal/palcom/v9y2022i1d10.1057_s41599-022-01259-5.html
   My bibliography  Save this article

ESG performance and stock prices: evidence from the COVID-19 outbreak in China

Author

Listed:
  • Zengfu Li

    (South China Normal University)

  • Liuhua Feng

    (South China Normal University)

  • Zheng Pan

    (Zhongkai University of Agriculture and Engineering)

  • Hafiz M. Sohail

    (South China Normal University)

Abstract

This paper investigates the role of environmental, social, and governance (ESG) performance in stock prices during the market financial crisis caused by the COVID-19 pandemic. We use the Chinese listed company data as the bases for adopting an event-study method to identify the impact of ESG performance on cumulative abnormal returns. Empirical results suggest that ESG performance significantly increases firms’ cumulative abnormal returns and has asymmetric effects during the pandemic. Our results are robust to various robustness checks that consider the replacement of event window period, ESG measurement, adding other control variables, and sample exclusion of Hubei Province. We further find that reputation and insurance effects are important mechanisms through which ESG performance influences stock prices. Lastly, heterogeneous analyses show that ESG effects are considerably pronounced among firms with low human capital and bad image and in high-impact regions.

Suggested Citation

  • Zengfu Li & Liuhua Feng & Zheng Pan & Hafiz M. Sohail, 2022. "ESG performance and stock prices: evidence from the COVID-19 outbreak in China," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-10, December.
    • Handle: RePEc:pal:palcom:v:9:y:2022:i:1:d:10.1057_s41599-022-01259-5
    DOI: 10.1057/s41599-022-01259-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41599-022-01259-5
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41599-022-01259-5?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. Henke, Hans-Martin, 2016. "The effect of social screening on bond mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 67(C), pages 69-84.
    2. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    3. 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.
    4. Manabe, Tomonori & Nakagawa, Kei, 2022. "The value of reputation capital during the COVID-19 crisis: Evidence from Japan," Finance Research Letters, Elsevier, vol. 46(PA).
    5. Remmer Sassen & Anne-Kathrin Hinze & Inga Hardeck, 2016. "Impact of ESG factors on firm risk in Europe," Journal of Business Economics, Springer, vol. 86(8), pages 867-904, November.
    6. Chitru S. Fernando & Anthony D. May & William L. Megginson, 2012. "The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers," Journal of Finance, American Finance Association, vol. 67(1), pages 235-270, February.
    7. Ravi Jagannathan & Ashwin Ravikumar & Marco Sammon, 2017. "Environmental, Social, and Governance Criteria: Why Investors are Paying Attention," NBER Working Papers 24063, National Bureau of Economic Research, Inc.
    8. Wang, Li & Dai, Yunhao & Kong, Dongmin, 2021. "Air pollution and employee treatment," Journal of Corporate Finance, Elsevier, vol. 70(C).
    9. Yu, Ellen Pei-yi & Luu, Bac Van, 2021. "International variations in ESG disclosure – Do cross-listed companies care more?," International Review of Financial Analysis, Elsevier, vol. 75(C).
    10. Milton Friedman, 2007. "The Social Responsibility of Business Is to Increase Its Profits," Springer Books, in: Walther Ch Zimmerli & Markus Holzinger & Klaus Richter (ed.), Corporate Ethics and Corporate Governance, pages 173-178, Springer.
    11. Li, Kai & Liu, Xing & Mai, Feng & Zhang, Tengfei, 2021. "The Role of Corporate Culture in Bad Times: Evidence from the COVID-19 Pandemic," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(7), pages 2545-2583, November.
    12. Ping Zhang & Jieying Gao & Xingchao Li, 2021. "Stock Liquidity and Firm Value in the Time of COVID-19 Pandemic," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(6), pages 1578-1591, May.
    13. Angelos Kanas, 2005. "Pure contagion effects in international banking: The case of BCCIÂ’s failure," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 101-123, May.
    14. Elias Erragragui & Christophe Revelli, 2015. "Should Islamic investors consider SRI criteria in their investment strategies?," Post-Print hal-02009789, HAL.
    15. Ren, Zhaomin & Zhang, Xuan & Zhang, Zhekai, 2021. "New evidence on COVID-19 and firm performance," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 213-225.
    16. Lee, Sangki & Lee, Dongyoup & Hong, Chunghun & Park, Myung-Ho, 2022. "Performance of socially responsible firms during the COVID-19 crisis and trading behavior by investor type: Evidence from the Korean stock market," Finance Research Letters, Elsevier, vol. 45(C).
    17. Erragraguy, Elias & Revelli, Christophe, 2015. "Should Islamic investors consider SRI criteria in their investment strategies?," Finance Research Letters, Elsevier, vol. 14(C), pages 11-19.
    18. Jeremy Galbreath, 2013. "ESG in Focus: The Australian Evidence," Journal of Business Ethics, Springer, vol. 118(3), pages 529-541, December.
    19. Chitra Sriyani De Silva Lokuwaduge & Kumudini Heenetigala, 2017. "Integrating Environmental, Social and Governance (ESG) Disclosure for a Sustainable Development: An Australian Study," Business Strategy and the Environment, Wiley Blackwell, vol. 26(4), pages 438-450, May.
    20. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    21. Al-Awadhi, Abdullah M. & Alsaifi, Khaled & Al-Awadhi, Ahmad & Alhammadi, Salah, 2020. "Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    22. Mengyao Fu & Huayu Shen, 2021. "COVID-19 and Corporate Performance in the Energy Industry," Energy RESEARCH LETTERS, Asia-Pacific Applied Economics Association, vol. 1(1), pages 1-4.
    23. Jun Xie & Wataru Nozawa & Michiyuki Yagi & Hidemichi Fujii & Shunsuke Managi, 2019. "Do environmental, social, and governance activities improve corporate financial performance?," Business Strategy and the Environment, Wiley Blackwell, vol. 28(2), pages 286-300, February.
    24. István Ábel & Pierre L. Siklos & István P. Székely, 1998. "Money and Finance in the Transition to a Market Economy," Books, Edward Elgar Publishing, number 830.
    25. Díaz, Violeta & Ibrushi, Denada & Zhao, Jialin, 2021. "Reconsidering systematic factors during the Covid-19 pandemic – The rising importance of ESG," Finance Research Letters, Elsevier, vol. 38(C).
    26. 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.
    27. 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).
    28. Pedersen, Lasse Heje & Fitzgibbons, Shaun & Pomorski, Lukasz, 2021. "Responsible investing: The ESG-efficient frontier," Journal of Financial Economics, Elsevier, vol. 142(2), pages 572-597.
    29. Bushee, BJ & Noe, CF, 2000. "Corporate disclosure practices, institutional investors, and stock return volatility," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 171-202.
    30. 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.
    31. Emiel Duuren & Auke Plantinga & Bert Scholtens, 2016. "ESG Integration and the Investment Management Process: Fundamental Investing Reinvented," Journal of Business Ethics, Springer, vol. 138(3), pages 525-533, October.
    32. Chang, Yanhao & Benson, Karen & Faff, Robert, 2017. "Are excess cash holdings more valuable to firms in times of crisis? Financial constraints and governance matters," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 157-173.
    33. Tang, Chia-Hsien & Chin, Chih-Yu & Lee, Yen-Hsien, 2021. "Coronavirus disease outbreak and supply chain disruption: Evidence from Taiwanese firms in China," Research in International Business and Finance, Elsevier, vol. 56(C).
    34. Albuquerque, Rui & Koskinen, Yrjo & Yang, Shuai & Zhang, Chendi, 2020. "Love in the Time of COVID-19: The Resiliency of Environmental and Social Stocks," CEPR Discussion Papers 14661, C.E.P.R. Discussion Papers.
    35. Campbell, John Y. & Lo, Andrew W. & MacKinlay, A. Craig & Whitelaw, Robert F., 1998. "The Econometrics Of Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 2(4), pages 559-562, December.
    36. Maria Baldini & Lorenzo Dal Maso & Giovanni Liberatore & Francesco Mazzi & Simone Terzani, 2018. "Role of Country- and Firm-Level Determinants in Environmental, Social, and Governance Disclosure," Journal of Business Ethics, Springer, vol. 150(1), pages 79-98, June.
    37. Pandey, Dharen Kumar & Kumari, Vineeta, 2021. "Event study on the reaction of the developed and emerging stock markets to the 2019-nCoV outbreak," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 467-483.
    38. Huayu Shen & Mengyao Fu & Hongyu Pan & Zhongfu Yu & Yongquan Chen, 2020. "The Impact of the COVID-19 Pandemic on Firm Performance," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2213-2230, 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. Foley, Aoife M. & Heffron, Raphael J. & Al Kez, Dlzar & Furszyfer Del Rio, Dylan D. & McInerney, Celine & Welfle, Andrew, 2024. "Restoring trust in ESG investing through the adoption of just transition ethics," Renewable and Sustainable Energy Reviews, Elsevier, vol. 199(C).
    2. 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.
    3. Danni Yu & Tiantian Meng & Minyu Zheng & Rongyi Ma, 2024. "ESG uncertainty, investor attention and stock price crash risk in China: evidence from PVAR model analysis," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-13, December.
    4. Binbin Yang & Sang Do Park, 2024. "Under the ESG Dome of China," Sustainability, MDPI, vol. 16(16), pages 1-23, August.
    5. Liyuan Meng & Yuchen Zhang, 2023. "Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III," Sustainability, MDPI, vol. 15(14), pages 1-23, July.
    6. Zheng Chang & Alex Wei Fung NG & Siying Peng & Dandi Shi, 2024. "Stock price reactions to reopening announcements after China abolished its zero-COVID policy," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-9, December.
    7. Boglarka Bianka Kovacs & Gábor Neszveda & Eszter Baranyai & Adam Zaremba, 2024. "ESG unpacked: Environmental, social, and governance pillars and the stock price reaction to the invasion of Ukraine," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 14(3), pages 755-777, September.
    8. Chao-Chan Wu & Fei-Chun Cheng & Dong-Yu Sheh, 2023. "Exploring the factors affecting the implementation of corporate social responsibility from a strategic perspective," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-11, December.
    9. Dávid Tőzsér & Zoltán Lakner & Novy Anggraini Sudibyo & Anita Boros, 2024. "Disclosure Compliance with Different ESG Reporting Guidelines: The Sustainability Ranking of Selected European and Hungarian Banks in the Socio-Economic Crisis Period," Administrative Sciences, MDPI, vol. 14(3), pages 1-19, March.
    10. Olesya P. Kazachenok & Galina V. Stankevich & Natalia N. Chubaeva & Yuliya G. Tyurina, 2023. "Economic and legal approaches to the humanization of FinTech in the economy of artificial intelligence through the integration of blockchain into ESG Finance," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-9, December.
    11. Riccardo Savio & Edoardo D’Andrassi & Francesca Ventimiglia, 2023. "A Systematic Literature Review on ESG during the COVID-19 Pandemic," Sustainability, MDPI, vol. 15(3), pages 1-17, January.

    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. 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.
    2. Konstantinos Petridis & Nikolaos Kiosses & Ioannis Tampakoudis & Fouad Ben Abdelaziz, 2023. "Measuring the efficiency of mutual funds: Does ESG controversies score affect the mutual fund performance during the COVID-19 pandemic?," Operational Research, Springer, vol. 23(3), pages 1-29, September.
    3. Tobias Bauckloh & Stefan Schaltegger & Sebastian Utz & Sebastian Zeile & Bernhard Zwergel, 2023. "Active First Movers vs. Late Free-Riders? An Empirical Analysis of UN PRI Signatories’ Commitment," Journal of Business Ethics, Springer, vol. 182(3), pages 747-781, January.
    4. 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).
    5. Remo-Diez, Nieves & Mendaña-Cuervo, Cristina & Arenas-Parra, Mar, 2023. "Exploring the asymmetric impact of sustainability reporting on financial performance in the utilities sector: A longitudinal comparative analysis," Utilities Policy, Elsevier, vol. 84(C).
    6. Zhang, Chunqiang & Hao, Dayu & Gao, Lu & Xia, Fan & Zhang, Linlang, 2024. "Do ESG ratings improve capital market trading activities?," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 195-210.
    7. Pruthiranjan Dwibedi & Debasis Pahi & Antarjyami Sahu, 2024. "Mapping the landscape of environmental, social and governance research: A bibliometric analysis," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3745-3767, September.
    8. Muneer Shaik & Mohd Ziaur Rehman, 2023. "The Dynamic Volatility Connectedness of Major Environmental, Social, and Governance (ESG) Stock Indices: Evidence Based on DCC-GARCH Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 231-246, March.
    9. Narula, Radhika & Rao, Purnima & Kumar, Satish & Matta, Rahul, 2024. "ESG scores and firm performance- evidence from emerging market," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1170-1184.
    10. Raymond Kwong & Man Lung Jonathan Kwok & Helen S. M. Wong, 2023. "Green FinTech Innovation as a Future Research Direction: A Bibliometric Analysis on Green Finance and FinTech," Sustainability, MDPI, vol. 15(20), pages 1-27, October.
    11. 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).
    12. 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".
    13. Chunying Wu & Xiong Xiong & Ya Gao, 2022. "Does ESG Certification Improve Price Efficiency in the Chinese Stock Market?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(1), pages 97-122, March.
    14. Tao, Hu & Zhuang, Shan & Xue, Rui & Cao, Wei & Tian, Jinfang & Shan, Yuli, 2022. "Environmental Finance: An Interdisciplinary Review," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    15. Wang, Ren & Bian, Yuxiang & Xiong, Xiong, 2024. "Impact of ESG preferences on investments and emissions in a DSGE framework," Economic Modelling, Elsevier, vol. 135(C).
    16. Hassan, M. Kabir & Chiaramonte, Laura & Dreassi, Alberto & Paltrinieri, Andrea & Piserà, Stefano, 2022. "The religious fringe of Corporate Social Responsibility," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 243-265.
    17. Dan Daugaard, 2020. "Emerging new themes in environmental, social and governance investing: a systematic literature review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1501-1530, June.
    18. Lei Ruan & Heng Liu, 2021. "Environmental, Social, Governance Activities and Firm Performance: Evidence from China," Sustainability, MDPI, vol. 13(2), pages 1-16, January.
    19. Zhang, Ning & Zhang, Yue & Zong, Zhe, 2023. "Fund ESG performance and downside risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    20. Wang, Hu, 2024. "ESG investment preference and fund vulnerability," International Review of Financial Analysis, Elsevier, vol. 91(C).

    More about this item

    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:pal:palcom:v:9:y:2022:i:1:d:10.1057_s41599-022-01259-5. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: https://www.nature.com/ .

    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.