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Is ESG Data Financially Viable? A Case of Stock Price Synchronicity

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  • Srikanth Potharla
  • Neeraj Kumar
  • Pooja Choudhary
  • Surya Kumari Turubilli

Abstract

According to the information efficiency view, stock price synchronicity reflects the degree of integration of firm-specific information with market-level information. Stock price synchronicity is higher (lower) when there is a higher (lower) level of integration between the firm and the overall market information. As the disclosure of environmental, social and governance data provides more firm-specific, non-financial, value-relevant information to the market, stock prices reflect such information efficiently. It leads to more information efficiency and lower synchronicity of stock prices. Against this backdrop, the present study examines the relationship between ESG and its component scores and stock price synchronicity using a sample of 163 Indian companies reporting their ESG scores through the Thomson Reuters database from 2011 to 2021. The findings of the study confirmed that the ESG score and the scores of its components (except the governance score) have a significant negative impact on stock price synchronicity and a significant positive impact on idiosyncratic volatility. This is consistent with the information efficiency viewpoint, implying that ESG disclosure has value relevance in the capital market and that investors in the Indian market consider ESG information when making investment decisions.

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  • Srikanth Potharla & Neeraj Kumar & Pooja Choudhary & Surya Kumari Turubilli, 2024. "Is ESG Data Financially Viable? A Case of Stock Price Synchronicity," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 49(1), pages 62-81, February.
    • Handle: RePEc:sae:manlab:v:49:y:2024:i:1:p:62-81
    DOI: 10.1177/0258042X231181758
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    1. Ruan, Lei & Li, Jianing & Huang, Siqi, 2024. "News or noise? ESG disclosure and stock price synchronicity," International Review of Financial Analysis, Elsevier, vol. 95(PB).

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