Environmental, Social, and Governance (ESG) and Stock Price Volatility: The Moderating Role of Foreign Ownership in ASEAN-5 Countries
Intan Dyah Pitaloka

Gadjah Mada University

Abstract

This study examines the impact of Environmental, Social, and Governance (ESG) performance on stock price volatility in five ASEAN countries: Indonesia, Malaysia, Thailand, the Philippines, and Singapore. In light of the growing relevance of ESG in capital markets, especially in Southeast Asia, this research further investigates whether foreign ownership moderates the relationship between each ESG pillar and stock price volatility. The study addresses a research gap in the regional literature by focusing not only on ESG^s direct role in mitigating market risk, but also on the complex interaction with foreign investor participation across both emerging and developed ASEAN markets, which differ significantly in institutional maturity, investor behavior, and regulatory frameworks.

The research utilizes a panel dataset of 191 publicly listed firms from the five countries during the period 2017 to 2023. ESG pillar scores-Environmental, Social, and Governance-were obtained from Refinitiv and used as independent variables. Stock price volatility is measured as the annualized standard deviation of daily stock returns, representing a forward-looking measure of market risk commonly used in financial risk assessment. Foreign ownership data were collected from the Worldscope database, also via Refinitiv, and employed as a moderating variable to examine whether international investor participation amplifies or weakens the effect of ESG on price stability. Control variables include firm-level financial indicators such as leverage, return on assets (ROA), firm size, Tobin^s Q, and a dummy variable for the COVID-19 crisis to account for external macroeconomic shocks. Fixed effects panel regression was applied to control for unobserved heterogeneity across firms and over time.

The empirical findings reveal that all three ESG pillars significantly and negatively affect stock price volatility. This indicates that firms with better ESG performance are generally associated with more stable stock returns in the ASEAN-5 region. However, the interaction effects between foreign ownership and each ESG pillar are statistically insignificant. These results suggest that foreign ownership does not consistently enhance the stabilizing influence of ESG practices on stock volatility, contrary to expectations based on previous literature. The results remain robust after controlling for firm-specific characteristics and external crises.

In conclusion, this study provides new regional evidence on the stabilizing role of ESG practices in stock markets, reinforcing the argument that ESG contributes to risk mitigation and more sustainable market behavior. However, it also highlights that the assumed amplifying role of foreign ownership may not be uniformly applicable in Southeast Asian capital markets, where institutional environments and investor preferences vary considerably. The inclusion of Singapore, a developed market, further enriches the regional comparison by offering a benchmark for more mature financial systems. These findings offer valuable implications for policymakers, institutional investors, and corporate managers committed to advancing sustainable investment practices and strengthening financial resilience.

Keywords: ESG, stock volatility, foreign ownership, ASEAN-5, panel data, sustainable finance

Topic: Corporate governance