Does Environmental, Social and Governance Have an Impact on Stock Performance? A Panel Study of Indian Companies
The present study investigates the impact of environmental, social, and governance (ESG) on firms' profitability in the Indian setting on a sample of 23 firms. The bootstrap corrected fixed effects estimation and inference in the dynamic panel method is employed to investigate the relationship. The dynamic panel results show that the relationship between ESG score and firms' profitability is inconclusive in the short run. However, governance conditions affect firms' investment decisions and the nexus between ESG and firm financial performance in the long run. Therefore, institutional reforms are warranted to stabilise property rights and check parent-client politics for the long-run effects of sustainable environmental governance on firms' profitability.
© 2024 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Singh, S., & Singh, B. P. (2024). Does environmental, social and governance have an impact on stock performance? A Panel Study of Indian Companies. Journal of Applied Economic Sciences, Volume XIX, Summer, 2(84), 169 – 177. https://doi.org/10.57017/jaes.v19.2(84).05
[1] Alshehhi, A., Nobanee, H., & Khare, N. (2018). The impact of sustainability practices on corporate financial performance: Literature trends and future research potential. Sustainability, 10(2), 494. https://doi.org/10.3390/su10020494
[2] Artiach, T., Lee, D., Nelson, D., & Walker, J. (2010). The determinants of corporate sustainability performance. Accounting & Finance, 50(1), 31-51. https://onlinelibrary.wiley.com/doi/full/10.1111/j.1467-629X.2009.00315.x
[3] Aziz, N. A. A., Manab, N. A., & Othman, S. N. (2015). Exploring the perspectives of corporate governance and theories on sustainability risk management (SRM). Asian Economic and Financial Review, 5(10), 1148–1158. https://doi.org/10.18488/journal.aefr/2015.5.10/102.10.1148.1158
[4] Bodhanwala, S., & Bodhanwala, R. (2018). Does corporate sustainability impact firm profitability? Evidence from India. Management Decision, 56(8), 1734-1747. https://doi.org/10.1108/MD-04-2017-0381
[5] Cort, T. (2020). ESG Risk Depends on Management Control Quality. Values at Work: Sustainable Investing and ESG Reporting, 35-49. https://doi.org/10.1007/978-3-030-55613-6_3
[6] Designing Environment, Social, and Governance (ESG) within an Asset Management Framework. (2021).
[7] Demers, E., Hendrikse, J., Joos, P., & Lev, B. (2021). ESG did not immunize stocks during the COVID‐19 crisis, but investments in intangible assets did. Journal of Business Finance & Accounting, 48(3-4), 433-462. https://doi.org/10.1111/jbfa.12523
[8] De Spiegeleer, J., Höcht, S., Jakubowski, D., Reyners, S., & Schoutens, W. (2021). ESG: A new dimension in portfolio allocation. Journal of Sustainable Finance & Investment, 13(2), 827–867. https://doi.org/10.1080/20430795.2021.1923336
[9] Escrig-Olmedo, E., Fernández-Izquierdo, M. Á., Ferrero-Ferrero, I., Rivera-Lirio, J. M., & Muñoz-Torres, M. J. (2019). Rating the raters: Evaluating how ESG rating agencies integrate sustainability principles. Sustainability, 11(3), 915. https://doi.org/10.3390/SU11030915
[10] Glück, M., Hübel, B., & Scholz, H. (2021). ESG rating events and stock market reactions. Available at SSRN, 3803254. http://dx.doi.org/10.2139/ssrn.3803254
[11] Gazzola, P., Paterson, A., Amelio, S., Grechi, D., & Cristina, S. (2023). The role of individual social responsibility and corporate social responsibility in the tax fraud war: A comparison between the priorities of Italian and Romanian consumers. Corporate Social Responsibility and Environmental Management, 30(5), 2265–2277. https://doi.org/10.1002/csr.2482
[12] Hong, H. G., & Kostovetsky, L. (2010). Red and Blue Investing: Values and Finance. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.1214382
[13] Hong, H. G., Kubik, J. D., & Scheinkman, J. A. (2012). Financial Constraints on Corporate Goodness. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1734164
[14] Pompella, M. & Costantino, L. (2023). ESG Disclosure and Sustainability Transition: A New Metric and Emerging Trends in Responsible Investments. TalTech Journal of European Studies, 13(1), 8-39. https://doi.org/10.2478/bjes-2023-0002
[15] IISL. (2018). NIFTY100 ESG Indices-white paper series#10. March. https://www.niftyindices.com/docs/ default-source/indices/nifty100-esg/nifty_esg_indices_whitepaper.pdf?sfvrsn=c4a79834_4
[16] Khan, M. (2019). Corporate governance, ESG, and stock returns around the world. Financial Analysts Journal, 75(4), 103-123. https://doi.org/10.1080/0015198X.2019.1654299
[17] Lourenço, I. C., Branco, M. C., Curto, J. D., & Eugénio, T. (2012). How does the market value corporate sustainability performance? Journal of Business Ethics, 108, 417-428. https://link.springer.com/article/10.1007/s10551-011-1102-8
[18] Latino, C., Pelizzon, L., & Rzeźnik, A. (2021). The Power of ESG Ratings on Stock Markets. SSRN Electronic Journal, 310. https://doi.org/10.2139/ssrn.3801703
[19] Maletic, M., Maletic, D., Dahlgaard, J., Dahlgaard-Park, S. M., & Gomišcek, B. (2015). Do corporate sustainability practices enhance organizational economic performance? International Journal of Quality and Service Sciences, 7(2/3), 184-200. https://doi.org/10.1108/IJQSS-02-2015-0025
[20] Pedersen, L. H., Fitzgibbons, S., & Pomorski, L. (2021). Responsible investing: The ESG-efficient frontier. Journal of Financial Economics, 142(2), 572-597. https://doi.org/10.1016/j.jfineco.2020.11.001
[21] Sherwood, M. W., & Pollard, J. (2023). Responsible Investing: An Introduction to Environmental, Social, and Governance Investments. Routledge. 242 pp. ISBN: 978-1032100975
[22] Saygili, E., Arslan, S., & Birkan, A. O. (2022). ESG practices and corporate financial performance: Evidence from Borsa Istanbul. Borsa Istanbul Review, 22(3), 525-533. https://doi.org/10.1016/j.bir.2021.07.001
[23] Singh, B. P. (2019). Does governance matter? Evidence from BRICS. Global Business Review, 23(2), 408-425. https://doi.org/10.1177/09721509198612
[24] Singh, B. P., & Pradhan, K. C. (2020). Institutional quality and economic performance in South Asia. Journal of Public Affairs, 22(1), e2401. https://doi.org/10.1002/pa.2401
[25] Singh, B. P. (2021). Institutional quality and poverty reduction in BRICS. Poverty & Public Policy, 13(4), 335-350. https://doi.org/10.1002/pop4.327