The Effects of ESG Performance on Stock Price According to the Firm’s Characteristics

Purpose - This paper investigates the effects of ESG and ESG sub-factors performances, evaluated by KCGS (Korea institute of corporate governance and sustainability), on stock price. Design/methodology/approach - 5,061 non-financial companies are sampled out from the KOSPI (4,199 firms) and KOSDAQ (862 firms) between 2015 and 2021. The empirical analysis method was regression analysis and t-test. Findings - First, the ESG performances differ among the ESG sub-factors and markets. The performances of environmental and governance sub-factors differ between the firm’s characteristics. Second, the effects of the ESG performance on stock price are negative in both the KOSPI and KOSDAQ. This implies that, from the managing perspective, a company strives to avoid negative social reputation through appropriate investment in ESG, but the market tends to not give additional value to this effort. Third, the effects of the ESG sub-factors on stock prices are more negative on the group with high risk in each sub-factor. Fourth, the effects of the ESG performance on stock prices between high and low performance show different tendency among the ESG factors. Fifth, the effects of the ESG sub-factors on stock prices are influenced by the interaction between the firm’s characteristics and degree of ESG performance, and the effects of the interaction are different upon each factor. Research implications or Originality - T he results imply that the evaluation about the performance of investments in ESG management is different between the managers and the market. While the managers prefer more investments in ESG for improving the company’s reputation, the market does not want to invest excessively beyond social requirements. Therefore, it seems that the ESG performance may not have a positive effect on stock prices.