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The Motivating Role of Sentiment in ESG Performance: Evidence from Japanese Companies

Author

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  • Vuong, Ngoc Bao

    (Hiroshima University)

  • Suzuki, Yoshihisa

    (Hiroshima University)

Abstract

The paper investigates investor sentiment’s role in boosting Japanese companies to enhance their environmental, social, and corporate governance (ESG) performance. Using ESG scores of 367 firms between 2005 and 2019 from the ASSET4 database, we find that negative sentiment in the previous year, both firm and market level, can be a stimulation for the company’s commitments to its ESG activities next year. Notably, the moderating effect of the business sector and economic cycle on the sentiment-ESG inference are detected in our study differentiating between corporate and market sentiment, which have never been reported before. In detail, we discover that the impact of firm-specific sentiment is less pronounced for high-sensitive ESG firms. On the other hand, the driving force of market sentiment on corporate social behaviors weakens when economic recessions happen. Our results are robust after controlling for potential endogeneity issues and using alternative proxies for market sentiment.

Suggested Citation

  • Vuong, Ngoc Bao & Suzuki, Yoshihisa, 2021. "The Motivating Role of Sentiment in ESG Performance: Evidence from Japanese Companies," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 25(2), pages 125-150, June.
    • Handle: RePEc:ris:eaerev:0393
    DOI: 10.11644/KIEP.EAER.2021.25.2.393
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    Cited by:

    1. Song, Di & Shen, Na & Su, Jun, 2023. "A catering perspective of performance commitment-evidence from acquisitions in China," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).

    More about this item

    Keywords

    Firm-specific and Market Sentiment; Corporate Social Responsibility; ESG Performance; Business Sector; Economic Cycle;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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