Abstract
This study examines the heterogeneous performance of ESG investing in China before and after 2016, when the “Guidelines for Establishing a Green Financial System” was announced. In the portfolio analysis, high ESG portfolios earn significantly higher abnormal returns compared to low ESG portfolios in the post-2016 context, but this is not the case pre-2016. This outperformance is not closely related to common firm characteristics. Next, the stock analysis also shows that good ESG profiles predict higher future excess returns on average post-2016. The rising performance of good ESG stocks largely depends on equity cost advantage other than profitability improvement.
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