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Does firm environmental performance mitigate the market reaction to COVID-19 uncertainty?

Author

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  • Bongiovanni, Alessio
  • Fiandrino, Simona

Abstract

This paper investigates how firms’ environmental performance affected the market reaction caused by the uncertainty of the COVID-19 pandemic. Our analysis focuses on a sample of 3854 non-financial listed companies from 21 advanced economies. We find that high environmentally sustainable practices (ESP) are associated with lower returns during the COVID-19 crisis, especially when the pandemic began to spread globally. Also, our results show that ESP is not significantly related to volatility in the whole COVID-19 period. We find a positive relationship between ESP and volatility only in the early phases of the pandemic. The stronger contraction in earnings and cash flow forecasts for high ESP firms explains the negative effect of ESP on market returns. The cost structure of high ESP firms makes them more exposed to the unexpected global demand shock. Our findings suggest that firm environmental performance did not immunise against market turmoil.

Suggested Citation

  • Bongiovanni, Alessio & Fiandrino, Simona, 2024. "Does firm environmental performance mitigate the market reaction to COVID-19 uncertainty?," Research in International Business and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:riibaf:v:68:y:2024:i:c:s0275531923003197
    DOI: 10.1016/j.ribaf.2023.102193
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    More about this item

    Keywords

    COVID-19; Firm environmental performance; Stock returns; Volatility; ESG practices; Market uncertainty;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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