IDEAS home Printed from https://ideas.repec.org/p/hhs/cesisp/0477.html
   My bibliography  Save this paper

The Impact of ESG on Stocks’ Downside Risk and Risk Adjusted Return

Author

Listed:
  • Lööf, Hans

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Stephan, Andreas

    () (Jönköping International Business School, Jönköping University & Centre of Excellence for Science and Innovation Studies (CESIS))

Abstract

Investments considering corporate social responsibility continue to expand. Are companies pursuing a CSR agenda benefiting shareholders by reducing their financial downside risk? This paper investigates the relationship between a firm’s environmental, social and corporate governance (ESG) scores and its downside risk on the stock market. We study this link using a panel of 887 stocks listed in five European countries over the period 2005-2017. Our empirical results show that higher ESG scores are associated with reduced downside risk of stock returns. Based on the Fama-French three factor model, we found no systematic relationship between ESG and the level of risk-adjusted return.

Suggested Citation

  • Lööf, Hans & Stephan, Andreas, 2019. "The Impact of ESG on Stocks’ Downside Risk and Risk Adjusted Return," Working Paper Series in Economics and Institutions of Innovation 477, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0477
    as

    Download full text from publisher

    File URL: https://static.sys.kth.se/itm/wp/cesis/cesiswp477.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Sean D. Campbell, 2005. "A review of backtesting and backtesting procedures," Finance and Economics Discussion Series 2005-21, Board of Governors of the Federal Reserve System (U.S.), revised 2005.
    2. Roland Bénabou & Jean Tirole, 2010. "Individual and Corporate Social Responsibility," Economica, London School of Economics and Political Science, vol. 77(305), pages 1-19, January.
    3. Foo Ho & Hui-Ming Wang & Scott Vitell, 2012. "A Global Analysis of Corporate Social Performance: The Effects of Cultural and Geographic Environments," Journal of Business Ethics, Springer, vol. 107(4), pages 423-433, June.
    4. Hong, Harrison & Kacperczyk, Marcin, 2009. "The price of sin: The effects of social norms on markets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 15-36, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    ESG; Value at Risk; Risk-adjusted return; stock market; panel data;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:hhs:cesisp:0477. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vardan Hovsepyan). General contact details of provider: http://edirc.repec.org/data/cekthse.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.