IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v81y2025ics1544612325007160.html

Market responses to ESG amid signs of ESG De-institutionalization: evidence from the 2024 economic shock and Trump’s election victory

Author

Listed:
  • Wei, Haitian
  • Ooi, Chai-Aun
  • Mohd-Rashid, Rasidah

Abstract

Amid the recent ESG de-institutionalization by major financial institutions, this study investigates market responses to ESG factors during two major events that shake the U.S. stock market in 2024: (1) an economic shock and (2) a political shock tied to Trump’s election victory. Overall, the market reacts negatively to higher-ESG stocks during both events. However, the economic shock does not trigger a significant effect of ESG on the returns of stocks held by institutional or retail strategic traders, whereas the political shock does, particularly reflecting a shared preference for stocks with stronger governance performance. We also find that ESG performance in fully free-floated stocks has a significantly negative impact on returns only during the political shock, suggesting that informed traders capitalized on Trump’s anti-ESG narrative. Ultimately, our findings imply that the market increasingly values ESG through the lens of regulatory and institutional support, rather than viewing it solely as a stakeholder-driven imperative for sustainability.

Suggested Citation

  • Wei, Haitian & Ooi, Chai-Aun & Mohd-Rashid, Rasidah, 2025. "Market responses to ESG amid signs of ESG De-institutionalization: evidence from the 2024 economic shock and Trump’s election victory," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007160
    DOI: 10.1016/j.frl.2025.107457
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325007160
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.107457?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Shang, Zili & Yu, Bo & Lam, Keith S.K., 2025. "Does ESG explain stock returns? Evidence from Chinese stock markets," Finance Research Letters, Elsevier, vol. 79(C).
    2. Liu, Dayong & Gu, Kaiyuan & Hu, Wenhua, 2023. "ESG performance and stock idiosyncratic volatility," Finance Research Letters, Elsevier, vol. 58(PB).
    3. Harrison Hong & Edward Shore, 2023. "Corporate Social Responsibility," Annual Review of Financial Economics, Annual Reviews, vol. 15(1), pages 327-350, November.
    4. Lee, Michael T. & Raschke, Robyn L. & Krishen, Anjala S., 2022. "Signaling green! firm ESG signals in an interconnected environment that promote brand valuation," Journal of Business Research, Elsevier, vol. 138(C), pages 1-11.
    5. Shan, Tao, 2025. "Understanding ESG investing using higher return moments," Finance Research Letters, Elsevier, vol. 80(C).
    6. Elizabeth Blankespoor, 2019. "The Impact of Information Processing Costs on Firm Disclosure Choice: Evidence from the XBRL Mandate," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 57(4), pages 919-967, September.
    7. Zhen Huang & Yanxuan Shi & Ming Jia, 2025. "Greenwashing: A systematic literature review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(1), pages 857-882, March.
    8. Ding, Xiaoya (Sara) & Ni, Yang & Zhong, Ligang, 2016. "Free float and market liquidity around the world," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 236-257.
    9. Broadstock, David C. & Chan, Kalok & Cheng, Louis T.W. & Wang, Xiaowei, 2021. "The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China," Finance Research Letters, Elsevier, vol. 38(C).
    10. Walker, Thomas & Fernandes, Alisha & Karami, Moein, 2024. "Corporate resilience during crises and the role of ESG factors: Evidence from the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 69(PB).
    11. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    12. Nicolas, Maxime L.D. & Desroziers, Adrien & Caccioli, Fabio & Aste, Tomaso, 2024. "ESG reputation risk matters: An event study based on social media data," Finance Research Letters, Elsevier, vol. 59(C).
    13. Christophe, Stephen E. & Hsieh, Jim & Lee, Hun, 2024. "Reputation and recency: How do aggressive short sellers assess ESG-Related Information?," Journal of Business Research, Elsevier, vol. 180(C).
    14. Lashkaripour, Mohammadhossein, 2023. "ESG tail risk: The Covid-19 market crash analysis," Finance Research Letters, Elsevier, vol. 53(C).
    15. Hsu, Tzu-Jo & Huang, Alex YiHou, 2024. "On the resilience of US ESG stocks: Evidences from the COVID-19 market crashes," Economics Letters, Elsevier, vol. 235(C).
    16. Lööf, Hans & Sahamkhadam, Maziar & Stephan, Andreas, 2022. "Is Corporate Social Responsibility investing a free lunch? The relationship between ESG, tail risk, and upside potential of stocks before and during the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 46(PB).
    17. O'Trakoun, John & Scavette, Adam, 2025. "A better Sahm rule? Introducing the SOS recession indicator," Economics Letters, Elsevier, vol. 247(C).
    18. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.
    19. Wang, Jiazhen & Hu, Xiaolu & Zhong, Angel, 2023. "Stock market reaction to mandatory ESG disclosure," Finance Research Letters, Elsevier, vol. 53(C).
    20. Yin, Hong & Zhang, Lu & Cai, Chuangneng & Zhang, Zenglian & Zhu, Qihong, 2025. "Fiscal & tax incentives, ESG responsibility fulfillments, and corporate green innovation performance," International Review of Economics & Finance, Elsevier, vol. 98(C).
    21. Elizabeth Demers & Jurian Hendrikse & Philip Joos & Baruch Lev, 2021. "ESG did not immunize stocks during the COVID‐19 crisis, but investments in intangible assets did," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 433-462, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alberto Barroso del Toro & Laura Vivas Crisol & Xavier Tort-Martorell, 2022. "Comparing the Impacts of Sustainability Narratives on American and European Energy Shareholders: A Multi-Event Study Analysing Reactions to News before and during COVID-19," Sustainability, MDPI, vol. 14(23), pages 1-18, November.
    2. Ghallabi, Fahmi & Souissi, Bilel & Du, Anna Min & Ali, Shoaib, 2025. "ESG stock markets and clean energy prices prediction: Insights from advanced machine learning," International Review of Financial Analysis, Elsevier, vol. 97(C).
    3. Kumari, Vineeta & Pandey, Dharen Kumar, 2025. "Market reactions to the central bank’s mandate on climate-related financial risk disclosures: Evidence from the Indian banking sector," Finance Research Letters, Elsevier, vol. 84(C).
    4. Zhonghua Cheng & Lele Han, 2025. "Environmental and social governance performance and enterprise total factor productivity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 1411-1428, April.
    5. Dharen Kumar Pandey & Waleed M. Al‐ahdal & Hafiza Aishah Hashim, 2024. "Stock market reaction to mandatory sustainability reporting: Does carbon‐intensity and environmental, social, and governance reputation matter?," Business Strategy and the Environment, Wiley Blackwell, vol. 33(8), pages 9116-9140, December.
    6. Tang, Chia-Hsien & Lee, Yen-Hsien & Hsiao, Ming-Chun & Liu, Hung-Chun, 2024. "Exploring the impact of ESG components, CEO characteristics, and organizational themes on downside risk: Insights from Chinese firms," Finance Research Letters, Elsevier, vol. 61(C).
    7. Fonseca Luis Miguel & Skačkauskienė Ilona & Bușu Cristian & Minciu Mihaela, 2025. "Integrating ESG in business: Opportunities and risks through a systematic and bibliometric analysis," Management & Marketing, Sciendo, vol. 20(4), pages 1-15.
    8. Ali, Shoaib & Al-Nassar, Nassar S. & Sindhu, Muzammal Ilyas & Naveed, Muhammad, 2025. "Sustainable synergy: Static and dynamic nexus between ESG and BRICS equity markets," Research in International Business and Finance, Elsevier, vol. 74(C).
    9. Staněk Gyönyör, Lucie & Horváth, Matúš, 2024. "Does ESG affect stock market dependence? An empirical exploration of S&P 1200 companies shows the divergent nature of E–S–G pillars," Research in International Business and Finance, Elsevier, vol. 69(C).
    10. Bax, Karoline & Sahin, Özge & Czado, Claudia & Paterlini, Sandra, 2023. "ESG, risk, and (tail) dependence," International Review of Financial Analysis, Elsevier, vol. 87(C).
    11. Meyer, Julia, 2024. "Willingness to take risks for sustainability during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 59(C).
    12. Austin Moss & James P. Naughton & Clare Wang, 2024. "The Irrelevance of Environmental, Social, and Governance Disclosure to Retail Investors," Management Science, INFORMS, vol. 70(4), pages 2626-2644, April.
    13. Torsten Ehlers & Ulrike Elsenhuber & Kumar Jegarasasingam & Eric Jondeau, 2022. "Deconstructing ESG Scores: How to Invest with Your own Criteria," Swiss Finance Institute Research Paper Series 22-23, Swiss Finance Institute.
    14. Costanza Torricelli & Beatrice Bertelli, 2022. "ESG screening strategies and portfolio performance: how do they fare in periods of financial distress?," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0087, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    15. Berle, Erika & He, Wanwei (Angela) & Ødegaard, Bernt Arne, 2025. "The stock market and corporate consequences of ethical exclusions by the world’s largest fund," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 102(C).
    16. Walker, Thomas & Fernandes, Alisha & Karami, Moein, 2024. "Corporate resilience during crises and the role of ESG factors: Evidence from the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 69(PB).
    17. Li, Qianqian & Watts, Edward M. & Zhu, Christina, 2024. "Retail investors and ESG news," Journal of Accounting and Economics, Elsevier, vol. 78(2).
    18. Chen, Zhang-Hangjian & Kang, JingWen & Koedijk, Kees G. & Gao, Xiang & Gu, ZhenHua, 2024. "Short-term market reactions to ESG ratings disclosures: An event study in the Chinese stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 43(C).
    19. Khurram, Muhammad Usman & Chen, Lifeng & Abedin, Mohammad Zoynul & Adu, Douglas A. & Lucey, Brian, 2024. "ESG disclosure and internal pay gap: Empirical evidence from China," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 228-244.
    20. Wu, Shilei & Zhou, Fu-You & Si, Deng-Kui & Hao, Jiawei, 2025. "Does ESG rating policy reduce corporate risk-taking? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007160. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.