Corporate ESG and resilience of stock prices in the context of the COVID-19 pandemic in China

Abstract

The COVID-19 pandemic has had a significant impact on both the financial market and the real economy, leading to widespread concern about the relationship between environmental, social, and governance (ESG) responsibilities and shareholders' wealth. This paper examines the relationship between ESG responsibility and stock returns in the context of the COVID-19 pandemic and investigates the impact of ESG responsibility on stock price resilience. The results indicate that corporate ESG scores have positive impacts on stock returns during and after the COVID-19 crisis, with the positive impacts of ESG being more significant in the post-crisis period. Among the different ESG dimensions, environmental responsibility (ESG_E) has a more significant impact on stock returns, while social responsibility (ESG_S) and governance responsibility (ESG_G) have mixed impacts during the crisis. Furthermore, during and after the outbreak of COVID-19, the positive impacts of ESG are more pronounced among firms located in low-trust regions and firms with lower analyst coverage. Additionally, the study finds that corporate ESG responsibility help restore the resilience of stock prices during the crisis, with better ESG performance leading to stronger stock price resilience. Overall, the results strongly support the conclusion that ESG has acted as an “equity vaccine” during the COVID-19 pandemic.