Environmental, Social and Governance (ESG), Stock Price Volatility, and Firm Size
Noni Trisha Hapsari, Chorry Sulistyowati

Faculty of Economics and Business, Universitas Airlangga

Abstract

This research aims to examine the influence of company^s Environmental, Social, and Governance (ESG) practices on stock price volatility, moderated by firm size. This research also considers the effect of COVID-19 on the relationship between ESG and stock price volatility. The sample used in this research consists of companies shortlisted in the ESG Sector Leaders IDX KEHATI index with an observation period from 2018 to 2023. 222 observations were obtained and divided into three types of sample years and analyzed using multiple linear regression. Two regression models were utilized, incorporating Return on Assets (ROA) and Dividend Payout Ratio as control variables. The research findings suggest that there is a negative influence of ESG on stock price volatility, but this negative influence was not evident during the year of the COVID-19 pandemic. Firm size was not proven to moderate the influence of ESG on stock price volatility. The results of this study prove that information regarding a company^s ESG performance is relevant for investors in making investment decisions. Investors can consider information about ESG activities as one of the factors for identifying companies with lower investment risk, and companies can use this research findings to consider investments related to ESG activities. However, the findings also highlight that in crisis situations such as a pandemic, other factors may become more dominant in influencing stock price volatility, making ESG information less relevant. This research can contribute to the literature on sustainable finance and provide practical insights for companies and investors in understanding the role of ESG in the context of market risk.

Keywords: Environmental, Social and Governance- Stock price volatility- Firm size

Topic: Financial management