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Sample Selection Bias and Collinearity in Analyzing ESG Ratings and Stock Returns in Taiwan

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  • Shit-Ti Yu

    (Department of Quantitative Finance, National Tsing Hua University, 101, Section 2, Kuang-Fu Road, Hsinchu 300044, Taiwan)

  • Chih-Yi Chi

    (Department of Finance, National Chung Hsing University, 145 Xingda Road, South District, Taichung City 402202, Taiwan)

  • Yan-Yi Shen

    (Department of Quantitative Finance, National Tsing Hua University, 101, Section 2, Kuang-Fu Road, Hsinchu 300044, Taiwan)

Abstract

The popularity of ESG investing has led to researches on whether the investment brings higher returns. In Taiwan, the CommonWealth Magazine, since 2007, has granted CSR awards to 100 companies each year. We test whether these companies give investors better returns. Since a firm’s participation in the competition is an endogenous variable, we first address the sample selection bias issue using Heckman’s (1979) two-stage regression. Although the coefficient of the inverse Mills’ ratio is insignificant, we find that there is collinearity in the Heckman regression. After removing the collinearity, we conclude that the returns of good ESG company are not higher than other companies.

Suggested Citation

  • Shit-Ti Yu & Chih-Yi Chi & Yan-Yi Shen, 2025. "Sample Selection Bias and Collinearity in Analyzing ESG Ratings and Stock Returns in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 28(02), pages 1-26, June.
    • Handle: RePEc:wsi:rpbfmp:v:28:y:2025:i:02:n:s0219091525500080
    DOI: 10.1142/S0219091525500080
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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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