Corporate Governance Costs, Social Responsibilities and Capital Market Performance: Evidence from China
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Abstract
While better ESG is usually interpreted as a high likelihood of generating higher returns, the existing empirical literature suggests that stocks of firms with higher ESG scores may have lower subsequent realized returns than stocks with lower scores. Therefore, this paper examines the relationship between ESG scores, stock market performance, and associated costs, revealing a positive correlation between ESG scores and the stock market performance of Chinese listed companies. This study draws the following conclusions:
1. Regarding the relationship between ESG performance and stock returns of Chinese listed companies, this study concludes that stock returns of companies with low management costs can be significantly improved by increasing ESG scores. On average, a 1-point increase in ESG score is associated with a 2-4 bps increase in stock returns and a 0.1% decrease in volatility. In addition, there is a positive correlation between costs and ESG scores; for every 2 billion yuan of costs a listed company pays, it can increase its ESG score by 1 point.
2. Turning to the relationship between the ESG performance of Chinese listed companies and corporate costs, this study empirically concludes that R&D costs have the greatest impact on a company's ESG score.
To a certain extent, this study is conducive to inspiring Chinese listed companies to assume more social responsibility in their operations, further promoting the understanding and thinking of the business community, scholars, government, and other departments on the issue of how corporate ESG performance affects corporate value, and facilitating the regulators to rationally guide investors' investment behavior and provide reference value for investors to screen investment targets.
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