Has ESG Performance Reduced Stock Price Volatility

Abstract

In the context of sustainable development, it is of practical importance to study whether ESG performance can influence stock price volatility. This paper empirically analyzes the impact of corporate ESG performance on stock price volatility using a sample of A-share listed companies in Shanghai and Shenzhen, China, from 2011-2021. It is found that corporate ESG performance can significantly reduce stock price volatility, and this finding remains robust after controlling for sample selection bias, changing the measurement of key variables, and transforming the empirical model. Mechanistic tests suggest that analyst attention and corporate reputation are potential mechanisms of influence between ESG performance and stock price volatility. Further study finds that investor sentiment contributes to ESG performance in reducing stock price volatility. This paper provides operational evidence for ESG performance to play a positive screening role, stabilize stock markets and promote high-quality development of listed companies.