Does ESG performance promote vitality of capital market? Analysis from the perspective of stock liquidity

Abstract

Environmental, Social, and Governance (ESG) is changing from a concept to corporate soft power. Can this improve corporate performance in capital markets? There is little literature linking environmental, Social, and Governance performance to stock liquidity. Therefore, It is of urgent theoretical and practical importance to study the impact of environmental, Social, and Governance performance on stock liquidity. Using Chinese A-share listed companies from 2015 to 2020 as a sample to empirically examine the impact of environmental, Social, and Governance performance on stock liquidity and its mechanism. We find that environmental, Social, and Governance performance has a significant positive impact on listed companie’s stock liquidity. This conclusion was validated after conducting a series of robustness tests. Mechanism analysis shows that environmental, Social, and Governance performance can promote stock liquidity by reducing agency costs, increasing the proportion of foreign ownership, and improving corporate reputation. The heterogeneity analysis shows that environmental, Social, and Governance performance in state-owned enterprises, heavily polluting enterprises, and enterprises in areas with low degrees of marketisation has a more significant positive promoting effect on stock liquidity. This study expands the research on environmental, Social, and Governance performance and has implications for promoting the development of environmental, Social, and Governance practices.

Influence Mechanism between Corporate Social Responsibility and Financial Sustainability: Empirical Evidence from China

“…Secondly, with the fast development of the internet and information technology, information disseminates rapidly with very low costs. In that case, enterprise actively pursuing CSR can reduce frictions and conflicts with stakeholders, enhance the public's trust in and recognition of the enterprise, and create a good corporate image and reputation as a hidden asset to improve its market competitiveness [48][49][50]. Thirdly, the increase in corporate reputation can generate brand effects, enhance the soft power of enterprises, consolidate and expand market size, and thereby promote financial sustainability [51,52].…”

Corporate Social Responsibility Disclosure and Stock Market Liquidity: The Case of Jordan

“…Consequently, analysts are increasingly seeking enhanced ESG/CSR engagement details from companies and relaying such information to investors [22]. With the presence of mandatory CSR regulations, stakeholders find it more straightforward to identify companies with a CSR focus, thus enhancing their market prices and stock liquidity [23].…”

“…(22) The company discloses its contributions to scholarships and training courses for the local community. (23) The company discloses its efforts to combat poverty and unemployment. (24) The company discloses its support for cultural and sports activities in its community.…”