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The Nonlinear Impact of Environmental, Social, Governance on Stock Market Performance Among US Manufacturing and Banking Firms

Author

Listed:
  • Yan Wang

    (Department of Economics, American University, Washington, DC 20016, USA)

  • Ralph Sonenshine

    (Department of Economics, American University, Washington, DC 20016, USA)

Abstract

Results of studies have varied significantly regarding the effect of ESG investment on firm value. This paper weighs in on this issue by analyzing how changes in ESG scores impact excess stock market returns (alpha) and risk-adjusted returns (Sharpe ratio). We also analyze the differential impact of ESG investments on financial performance among US manufacturing and banking firms. Using quantile regression analysis, our results show a nonlinear relationship, characterized by a U-shaped relationship between ESG ratings and alpha but an inverted U-shaped relationship between ESG and the Sharpe ratio. These findings, along with results pertaining to the impact of ESG components, help explain conflicts in the literature regarding the effect of ESG investment on firm value.

Suggested Citation

  • Yan Wang & Ralph Sonenshine, 2025. "The Nonlinear Impact of Environmental, Social, Governance on Stock Market Performance Among US Manufacturing and Banking Firms," JRFM, MDPI, vol. 18(6), pages 1-28, May.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:6:p:293-:d:1666007
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    References listed on IDEAS

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    1. Richard F. J. Haans & Constant Pieters & Zi-Lin He, 2016. "Thinking about U: Theorizing and testing U- and inverted U-shaped relationships in strategy research," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1177-1195, July.
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    Cited by:

    1. Chieh-Jung Chan & Ping-Fang Yen & Hsin-Wen Wang & Yuan Chang, 2026. "ESG Performance and Bank Loan Interest Rates," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 16(1), pages 1-4.

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