The Relationship between Environmental, Social and Governance (ESG) Performance and Investors’ Sentiment in the Presence of Information Asymmetry

Document Type : Research Paper

Authors

1 Department of Accounting, Faculty of Economics and Administrative Sciences, University of Isfahan, Isfahan, Iran.

2 Department of Economics, Faculty of Economics and Administrative Sciences, University of Isfahan, Isfahan, Iran.

10.22103/jak.2024.23751.4078

Abstract

Objective: This study investigates the relationship between Environmental, Social, and Governance (ESG) performance and investor sentiment in the presence of information asymmetry. It aims to determine how variations in ESG performance influence investors’ attitudes and whether asymmetric information moderates this relationship.
 
Method: In this regard, a sample comprising 1,300 firm-year observations over the period 2013–2022 was selected and estimated using the Ordinary Least Squares (OLS) method with robust standard errors.
 
Results: The results showed that increasing environmental, social and governance performance leads to increased investor sentiment. However, the existence of information asymmetry weakens the relationship between ESG performance and investor sentiment. By examining each dimension, the findings revealed that the environmental and social dimensions are the most significant components of Environmental, Social, and Governance (ESG) performance, which can enhance investors’ sentiment. Furthermore, information asymmetry was found to weaken the positive impact of environmental and social factors on investors’ sentiment. Finally, the sensitivity analyses indicated that when investor sentiment is low, ESG performance contributes to an increase in investor sentiment; however, when investor sentiment is high, ESG performance has no significant effect on investor sentiment.
 
Conclusion: Firms with strong Environmental, Social, and Governance (ESG) performance, by demonstrating their commitment to stakeholders and disclosing both financial and non-financial information, can enhance investors’ sentiment toward the company.

Keywords

Main Subjects

References

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  • Receive Date: 14 July 2024
  • Revise Date: 16 September 2024
  • Accept Date: 23 September 2024

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