The market response to Environmental, Social and Governance performance: A global analysis
Abstract/Description
The Environmental, Social and Governance (ESG) dimensions are no longer treated as externalities. However, little is known how the markets react to such externalities. Using a comprehensive dataset of 5038 firms from 73 countries for the period of 2016 to 2021, this study is designed to estimate the market reaction to ESG performance. We find that ESG disclosure slightly reduces market risk and weighted average cost of capital but increases analyst forecast dispersion. This asymmetric reaction shows that the market cannot read and interpret or does not trust what is disclosed in ESG reporting. Moreover, the geographical analysis shows that the results are biased towards different regions. The market indicators for the European Union exhibited a negative association which is consistent for each model. This symmetric behavior authenticates EU initiatives for the internalization of ESG factors. Whereas this behavior was asymmetric for Americas, Asia, Oceanian and African capital markets.
Track
Finance
Session Number/Theme
Session 1B: Finance
Session Chair
Dr. Sana Tauseef ; Dr. Mohsin Khawaja
Start Date/Time
26-5-2023 2:45 PM
End Date/Time
26-5-2023 4:45 PM
Location
MCS-4, Aman-CED, First Floor, Institute of Business Administration, Karachi
Recommended Citation
Khan, M., Khan, A., Hassan, M., & Maraghini, M. (2023). The market response to Environmental, Social and Governance performance: A global analysis. 3rd IBA SBS International Conference 2024. Retrieved from https://ir.iba.edu.pk/sbsic/2023/program/1
COinS
The market response to Environmental, Social and Governance performance: A global analysis
MCS-4, Aman-CED, First Floor, Institute of Business Administration, Karachi
The Environmental, Social and Governance (ESG) dimensions are no longer treated as externalities. However, little is known how the markets react to such externalities. Using a comprehensive dataset of 5038 firms from 73 countries for the period of 2016 to 2021, this study is designed to estimate the market reaction to ESG performance. We find that ESG disclosure slightly reduces market risk and weighted average cost of capital but increases analyst forecast dispersion. This asymmetric reaction shows that the market cannot read and interpret or does not trust what is disclosed in ESG reporting. Moreover, the geographical analysis shows that the results are biased towards different regions. The market indicators for the European Union exhibited a negative association which is consistent for each model. This symmetric behavior authenticates EU initiatives for the internalization of ESG factors. Whereas this behavior was asymmetric for Americas, Asia, Oceanian and African capital markets.
