The Influence of Environmental, Social, Governance, and Corporates Scandals on the Stock Volatility
DOI:
https://doi.org/10.35877/454RI.qems2390Keywords:
ESG, Corporate Controversies, Stock VolatilityAbstract
The volatility of stocks is influenced by various factors, both internal andexternal to the company. This research aims to determine whether there is a relationship between Environmental, Social, Governance (ESG) performance and corporate controversies on stock volatility. The sample used in this study consists of companies listed on the Indonesia Stock Exchange for the period 2018—2022 and have an ESG rating from The London Stock Exchange Group (LSEG). Based on the analysis conducted, it is concluded that environmental performance negatively affects stock volatility, while social performance, governance performance, and corporate controversies do not have an impact on stock volatility.
References
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Assous , H.F. (2022). Saudi Green Banks and Stock Return Volatility: GLE Algorithm and Neural Network Models. Economies, 10 (10), 242. https://doi.org/10.3390/economies10100242
Bermejo Climent, R., Garrigues, IF-F., Paraskevopoulos, I., & Santos, A. (2021). ESG Disclosure and Portfolio Performance. Risks, 9 (10), 172. https://doi.org/10.3390/risks9100172
Bridoux, F.M., & Vishwanathan, P. (2020). When Do Powerful Stakeholders Give Managers the Latitude to Balance All Stakeholders' Interests? Business & Society, 59 (2), 232–262. https://doi.org/10.1177/0007650318775077
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Chaudhary, R., Bakhshi, P., & Gupta, H. (2020). Volatility in International Stock Markets: An Empirical Study during COVID-19. Journal of Risk and Financial Management, 13 (9), 208. https://doi.org/10.3390/jrfm13090208
Chen, C.-D., Su, C.-H. (Joan), & Chen, M.-H. (2022). Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns. Journal of Air Transport Management, 102, 102229. https://doi.org/10.1016/j.jairtraman.2022.102229
Cui, B., & Docherty, P. (2020). Stock Price Overreaction to ESG Controversies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3559915
Donaldson, T., & Preston, L. E. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. The Academy of Management Review, 20 (1), 65. https://doi.org/10.2307/258887
Donaldson, T., & Preston, L. E. (1998). The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications. In M. Clarkson (Ed.), The Corporation and Its Stakeholders (pp . 173–204). University of Toronto Press. https://doi.org/10.3138/9781442673496-011
Dowling, J., & Pfeffer, J. (1975). Organizational Legitimacy: Social Values and Organizational Behavior. The Pacific Sociological Review, 18 (1), 122–136. https://doi.org/10.2307/1388226
Duttilo, P., Gattone, S. A., & Battista, T. (2021). Volatility Modeling: An Overview of Equity Markets in the Euro Area During the COVID-19 Pandemic . https://doi.org/10.20944/preprints202103.0628.v1
Engelhardt, N., Ekkenga, J., & Posch, P. (2021). ESG Ratings and Stock Performance during the COVID-19 Crisis. Sustainability, 13 (13), Article 13. https://doi.org/10.3390/su13137133
Fama, E.F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25 (2), 383. https://doi.org/10.2307/2325486
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.
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Glasserman, P., & Mamaysky, H. (2019). Does Unusual News Forecast Market Stress? Journal of Financial and Quantitative Analysis , 54 (5), 1937–1974. https://doi.org/10.1017/S0022109019000127
Hargrave, M. (2022, June 14). Return on Assets (ROA): Formula and “Good” ROA Defined. https://www.investopedia.com/terms/r/returnonassets.asp
Hayes, A. (2023, May 23). Profitability Ratios: What They Are, Common Types, and How Businesses Use Them . https://www.investopedia.com/terms/p/profitabilityratios.asp
Huang, X., & Tang, H. (2022). Measuring multi?volatility states of financial markets based on multifractal clustering model. Journal of Forecasting , 41 (3), 422–434. https://doi.org/10.1002/for.2820
Hunjra, A.I., Mehmood, R., & Tayachi, T. (2020). How Does Corporate Social Responsibility and Corporate Governance Affect Stock Price Crash Risk? Journal of Risk and Financial Management, 13 (2), 30. https://doi.org/10.3390/jrfm13020030
Ihsani, AN, Nidar, SR, & Kurniawan, M. (2023). Does ESG Performance Affect Financial Performance? Evidence from Indonesia. Wiga: Journal of Economic Research, 13 (1), 46–61. https://doi.org/10.30741/wiga.v13i1.968
Kartika, F., Dermawan, A., & Hudaya, F. (2023). Environmental, social, governance (ESG) disclosure in increasing the value of public companies on the Indonesian Stock Exchange. SOCIOHUMANIOR: Scientific Journal of Social Sciences and Humanities, 9 (1), 29–39. https://doi.org/10.30738/sosio.v9i1.14014
Kim, S., & Li, Z. (Frank). (2021). Understanding the Impact of ESG Practices in Corporate Finance. Sustainability, 13 (7), 3746. https://doi.org/10.3390/su13073746
KPMG. (2022). Big Shifts, Small Steps: Survey of Sustainability Reporting 2022. https://assets.kpmg.com/content/dam/kpmg/pk/pdf/2022/10/Survey-of-Sustainability-Reporting-2022.pdf
Laokulrach, M. (2022). The Influence of Sustainable Development on Stock Risk and Volatility in Thailand's Stock Exchange during the COVID-19 Pandemic. Asian Economic and Financial Review, 12 (9), 751–765. https://doi.org/10.55493/5002.v12i9.4592
Lee, S.-N., Hooy, C.-W., & Taib, F. M. (2019). The Effect of Corporate Governance on Firm Stock Volatility in Asia. Journal of Asia-Pacific Business , 20 (1), 25–47. https://doi.org/10.1080/10599231.2019.1572421
LSEG. (2022). Environmental, Social, and Governance Scores from LSEG. LSEG. https://www.lseg.com/content/dam/data-analytics/en_us/documents/methodology/lseg-esg-scores-methodology.pdf
Lubis, MFF, & Rokhim , R. (2021). The Effect of Environmental, Social, and Governance (ESG) Disclosure and Competitive Advantage on Companies Performance as An Implementation of Sustainable Economic Growth in Indonesia for the Period of 2015-2019. IOP Conference Series: Earth and Environmental Science, 940 (1), 012059. https://doi.org/10.1088/1755-1315/940/1/012059
Meher, B.K., Hawaldar , I.T., Mohapatra, L., Spulbar , C., & Birau, R. (2020). The Effects of Environment, Society and Governance Scores on Investment Returns and Stock Market Volatility. International Journal of Energy Economics and Policy , 10 (4), 234–239. https://doi.org/10.32479/ijeep.9311
Nadya, K. (2023, July 12). Annualized Standard Deviation is: Definition, Uses and How to Calculate It. https://www.idxchannel.com/market-news/annualized-standard-deviation-dapat-ini-detik-kegunaan-dan-cara-hitungnya
Nurhaliza, S. (2021, March 14). Don't misunderstand, let's get to know stock volatility on the stock exchange floor. https://www.idxchannel.com/milenomic/jangan-lahan-paham-yuk-kenali-volatilitas-saham-di-lantai-bursa
Reber, B., Gold, A., & Gold, S. (2022). ESG Disclosure and Idiosyncratic Risk in Initial Public Offerings. Journal of Business Ethics, 179 (3), 867–886. https://doi.org/10.1007/s10551-021-04847-8
Rodionova, M., Skhvediani , A., & Kudryavtseva, T. (2022). ESG as a Booster for Logistics Stock Returns—Evidence from the US Stock Market. Sustainability, 14 (19), 12356. https://doi.org/10.3390/su141912356
Sabbaghi, O. (2022). The impact of news on the volatility of ESG firms. Global Finance Journal, 51, 100570. https://doi.org/10.1016/j.gfj.2020.100570
Sandu, D.-M. (2023, May 11). The Impact of ESG Controversies and ESG Performance on Stock Return Volatility . 13th International Scientific Conference „Business and Management 2023“, Vilnius Gediminas Technical University, Lithuania. https://doi.org/10.3846/bm.2023.1032
Shakil, M. H. (2021). Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity. Resources Policy, 72, 102144. https://doi.org/10.1016/j.resourpol.2021.102144
Shakil, M. H. (2022). Environmental, social and governance performance and stock price volatility: A moderating role of firm size. Journal of Public Affairs, 22 (3), e2574. https://doi.org/10.1002/pa.2574
Spence, M. (1973). Job Market Signaling. The Quarterly Journal of Economics, 87 (3), 355. https://doi.org/10.2307/1882010
Sugiyono. (2022). Quantitative Research Methods. Alphabet .
Tanjung, M. (2023). Cost of capital and firm performance of ESG companies: What can we infer from the COVID-19 pandemic? Sustainability Accounting, Management and Policy Journal, 14 (6), 1242–1267. https://doi.org/10.1108/SAMPJ-07-2022-0396
Tasnia, M., Syed Jaafar AlHabshi, S.M., & Rosman, R. (2021). The impact of corporate social responsibility on stock price volatility of the US banks: A moderating role of tax. Journal of Financial Reporting and Accounting, 19 (1), 77–91. https://doi.org/10.1108/JFRA-01-2020-0020
Valls Martínez, M.D.C., Soriano Román, R., & Mart´ín -Cervantes, P.A. (2022). Should risk-averse investors target the portfolios of socially responsible companies? Economia Copernicana, 13 (2), 439–474. https://doi.org/10.24136/oc.2022.014
Wahyuningtyas, ET, Susesti , DA, & Murtadho , M. (2022). Does sustainability reporting improve financial and non-financial performance in Indonesian Companies?: International Conference on Sustainable Innovation Track Accounting and Management Sciences (ICOSIAMS 2021), Bantul, Indonesia. https://doi.org/10.2991/aebmr.k.211225.034
Xue, B., Zhang, Z., & Li, P. (2020). Corporate environmental performance, environmental management and firm risk. Business Strategy and the Environment, 29 (3), 1074–1096. https://doi.org/10.1002/bse.2418
Yang, X. (2020). CSR Disclosure and Stock Return Volatility in China: An Empirical Study Based on Panel Data Models. 2020 Management Science Informatization and Economic Innovation Development Conference (MSIEID) , 55–58. https://doi.org/10.1109/MSIEID52046.2020.00018
Yoo, S., Keeley, A. R., & Managi, S. (2021). Does sustainability activities performance matter during financial crises? Investigating the case of COVID-19. Energy Policy, 155, 112330. https://doi.org/10.1016/j.enpol.2021.112330
Zahroh, B.M., & Hersugondo, H. (2021). The Effect of ESG Performance on the Financial Performance of Manufacturing Companies Listed in The Indonesian. AFEBI Management and Business Review, 6 (2), 129. https://doi.org/10.47312/ambr.v6i2.475
Zanatto, C., Catalão ?Lopes, M., Pina, J. P., & Carrilho?Nunes, I. (2023). The impact of ESG news on the volatility of the Portuguese stock market—Does it change during recessions? Business Strategy and the Environment, 32 (8), 5821–5832. https://doi.org/10.1002/bse.3450
Zhou, D., & Zhou, R. (2021). ESG Performance and Stock Price Volatility in Public Health Crisis: Evidence from COVID-19 Pandemic. International Journal of Environmental Research and Public Health, 19 (1), 202. https://doi.org/10.3390/ijerph19010202
Assous , H.F. (2022). Saudi Green Banks and Stock Return Volatility: GLE Algorithm and Neural Network Models. Economies, 10 (10), 242. https://doi.org/10.3390/economies10100242
Bermejo Climent, R., Garrigues, IF-F., Paraskevopoulos, I., & Santos, A. (2021). ESG Disclosure and Portfolio Performance. Risks, 9 (10), 172. https://doi.org/10.3390/risks9100172
Bridoux, F.M., & Vishwanathan, P. (2020). When Do Powerful Stakeholders Give Managers the Latitude to Balance All Stakeholders' Interests? Business & Society, 59 (2), 232–262. https://doi.org/10.1177/0007650318775077
Capital Group. (2022). ESG Global Study 2022 . https://corpgov.law.harvard.edu/2022/06/17/esg-global-study-2022/
Chaudhary, R., Bakhshi, P., & Gupta, H. (2020). Volatility in International Stock Markets: An Empirical Study during COVID-19. Journal of Risk and Financial Management, 13 (9), 208. https://doi.org/10.3390/jrfm13090208
Chen, C.-D., Su, C.-H. (Joan), & Chen, M.-H. (2022). Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns. Journal of Air Transport Management, 102, 102229. https://doi.org/10.1016/j.jairtraman.2022.102229
Cui, B., & Docherty, P. (2020). Stock Price Overreaction to ESG Controversies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3559915
Donaldson, T., & Preston, L. E. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. The Academy of Management Review, 20 (1), 65. https://doi.org/10.2307/258887
Donaldson, T., & Preston, L. E. (1998). The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications. In M. Clarkson (Ed.), The Corporation and Its Stakeholders (pp . 173–204). University of Toronto Press. https://doi.org/10.3138/9781442673496-011
Dowling, J., & Pfeffer, J. (1975). Organizational Legitimacy: Social Values and Organizational Behavior. The Pacific Sociological Review, 18 (1), 122–136. https://doi.org/10.2307/1388226
Duttilo, P., Gattone, S. A., & Battista, T. (2021). Volatility Modeling: An Overview of Equity Markets in the Euro Area During the COVID-19 Pandemic . https://doi.org/10.20944/preprints202103.0628.v1
Engelhardt, N., Ekkenga, J., & Posch, P. (2021). ESG Ratings and Stock Performance during the COVID-19 Crisis. Sustainability, 13 (13), Article 13. https://doi.org/10.3390/su13137133
Fama, E.F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25 (2), 383. https://doi.org/10.2307/2325486
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.
Freeman, R. E. (1998). A Stakeholder Theory of the Modern Corporation. In M. Clarkson (Ed.), The Corporation and Its Stakeholders ( pp . 125–138). University of Toronto Press. https://doi.org/10.3138/9781442673496-009
Ghozali, I. (2020). Quantitative & Qualitative Research Design for Accounting, Business, and Other Social Sciences. Primary Yoga .
Glasserman, P., & Mamaysky, H. (2019). Does Unusual News Forecast Market Stress? Journal of Financial and Quantitative Analysis , 54 (5), 1937–1974. https://doi.org/10.1017/S0022109019000127
Hargrave, M. (2022, June 14). Return on Assets (ROA): Formula and “Good” ROA Defined. https://www.investopedia.com/terms/r/returnonassets.asp
Hayes, A. (2023, May 23). Profitability Ratios: What They Are, Common Types, and How Businesses Use Them . https://www.investopedia.com/terms/p/profitabilityratios.asp
Huang, X., & Tang, H. (2022). Measuring multi?volatility states of financial markets based on multifractal clustering model. Journal of Forecasting , 41 (3), 422–434. https://doi.org/10.1002/for.2820
Hunjra, A.I., Mehmood, R., & Tayachi, T. (2020). How Does Corporate Social Responsibility and Corporate Governance Affect Stock Price Crash Risk? Journal of Risk and Financial Management, 13 (2), 30. https://doi.org/10.3390/jrfm13020030
Ihsani, AN, Nidar, SR, & Kurniawan, M. (2023). Does ESG Performance Affect Financial Performance? Evidence from Indonesia. Wiga: Journal of Economic Research, 13 (1), 46–61. https://doi.org/10.30741/wiga.v13i1.968
Kartika, F., Dermawan, A., & Hudaya, F. (2023). Environmental, social, governance (ESG) disclosure in increasing the value of public companies on the Indonesian Stock Exchange. SOCIOHUMANIOR: Scientific Journal of Social Sciences and Humanities, 9 (1), 29–39. https://doi.org/10.30738/sosio.v9i1.14014
Kim, S., & Li, Z. (Frank). (2021). Understanding the Impact of ESG Practices in Corporate Finance. Sustainability, 13 (7), 3746. https://doi.org/10.3390/su13073746
KPMG. (2022). Big Shifts, Small Steps: Survey of Sustainability Reporting 2022. https://assets.kpmg.com/content/dam/kpmg/pk/pdf/2022/10/Survey-of-Sustainability-Reporting-2022.pdf
Laokulrach, M. (2022). The Influence of Sustainable Development on Stock Risk and Volatility in Thailand's Stock Exchange during the COVID-19 Pandemic. Asian Economic and Financial Review, 12 (9), 751–765. https://doi.org/10.55493/5002.v12i9.4592
Lee, S.-N., Hooy, C.-W., & Taib, F. M. (2019). The Effect of Corporate Governance on Firm Stock Volatility in Asia. Journal of Asia-Pacific Business , 20 (1), 25–47. https://doi.org/10.1080/10599231.2019.1572421
LSEG. (2022). Environmental, Social, and Governance Scores from LSEG. LSEG. https://www.lseg.com/content/dam/data-analytics/en_us/documents/methodology/lseg-esg-scores-methodology.pdf
Lubis, MFF, & Rokhim , R. (2021). The Effect of Environmental, Social, and Governance (ESG) Disclosure and Competitive Advantage on Companies Performance as An Implementation of Sustainable Economic Growth in Indonesia for the Period of 2015-2019. IOP Conference Series: Earth and Environmental Science, 940 (1), 012059. https://doi.org/10.1088/1755-1315/940/1/012059
Meher, B.K., Hawaldar , I.T., Mohapatra, L., Spulbar , C., & Birau, R. (2020). The Effects of Environment, Society and Governance Scores on Investment Returns and Stock Market Volatility. International Journal of Energy Economics and Policy , 10 (4), 234–239. https://doi.org/10.32479/ijeep.9311
Nadya, K. (2023, July 12). Annualized Standard Deviation is: Definition, Uses and How to Calculate It. https://www.idxchannel.com/market-news/annualized-standard-deviation-dapat-ini-detik-kegunaan-dan-cara-hitungnya
Nurhaliza, S. (2021, March 14). Don't misunderstand, let's get to know stock volatility on the stock exchange floor. https://www.idxchannel.com/milenomic/jangan-lahan-paham-yuk-kenali-volatilitas-saham-di-lantai-bursa
Reber, B., Gold, A., & Gold, S. (2022). ESG Disclosure and Idiosyncratic Risk in Initial Public Offerings. Journal of Business Ethics, 179 (3), 867–886. https://doi.org/10.1007/s10551-021-04847-8
Rodionova, M., Skhvediani , A., & Kudryavtseva, T. (2022). ESG as a Booster for Logistics Stock Returns—Evidence from the US Stock Market. Sustainability, 14 (19), 12356. https://doi.org/10.3390/su141912356
Sabbaghi, O. (2022). The impact of news on the volatility of ESG firms. Global Finance Journal, 51, 100570. https://doi.org/10.1016/j.gfj.2020.100570
Sandu, D.-M. (2023, May 11). The Impact of ESG Controversies and ESG Performance on Stock Return Volatility . 13th International Scientific Conference „Business and Management 2023“, Vilnius Gediminas Technical University, Lithuania. https://doi.org/10.3846/bm.2023.1032
Shakil, M. H. (2021). Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity. Resources Policy, 72, 102144. https://doi.org/10.1016/j.resourpol.2021.102144
Shakil, M. H. (2022). Environmental, social and governance performance and stock price volatility: A moderating role of firm size. Journal of Public Affairs, 22 (3), e2574. https://doi.org/10.1002/pa.2574
Spence, M. (1973). Job Market Signaling. The Quarterly Journal of Economics, 87 (3), 355. https://doi.org/10.2307/1882010
Sugiyono. (2022). Quantitative Research Methods. Alphabet .
Tanjung, M. (2023). Cost of capital and firm performance of ESG companies: What can we infer from the COVID-19 pandemic? Sustainability Accounting, Management and Policy Journal, 14 (6), 1242–1267. https://doi.org/10.1108/SAMPJ-07-2022-0396
Tasnia, M., Syed Jaafar AlHabshi, S.M., & Rosman, R. (2021). The impact of corporate social responsibility on stock price volatility of the US banks: A moderating role of tax. Journal of Financial Reporting and Accounting, 19 (1), 77–91. https://doi.org/10.1108/JFRA-01-2020-0020
Valls Martínez, M.D.C., Soriano Román, R., & Mart´ín -Cervantes, P.A. (2022). Should risk-averse investors target the portfolios of socially responsible companies? Economia Copernicana, 13 (2), 439–474. https://doi.org/10.24136/oc.2022.014
Wahyuningtyas, ET, Susesti , DA, & Murtadho , M. (2022). Does sustainability reporting improve financial and non-financial performance in Indonesian Companies?: International Conference on Sustainable Innovation Track Accounting and Management Sciences (ICOSIAMS 2021), Bantul, Indonesia. https://doi.org/10.2991/aebmr.k.211225.034
Xue, B., Zhang, Z., & Li, P. (2020). Corporate environmental performance, environmental management and firm risk. Business Strategy and the Environment, 29 (3), 1074–1096. https://doi.org/10.1002/bse.2418
Yang, X. (2020). CSR Disclosure and Stock Return Volatility in China: An Empirical Study Based on Panel Data Models. 2020 Management Science Informatization and Economic Innovation Development Conference (MSIEID) , 55–58. https://doi.org/10.1109/MSIEID52046.2020.00018
Yoo, S., Keeley, A. R., & Managi, S. (2021). Does sustainability activities performance matter during financial crises? Investigating the case of COVID-19. Energy Policy, 155, 112330. https://doi.org/10.1016/j.enpol.2021.112330
Zahroh, B.M., & Hersugondo, H. (2021). The Effect of ESG Performance on the Financial Performance of Manufacturing Companies Listed in The Indonesian. AFEBI Management and Business Review, 6 (2), 129. https://doi.org/10.47312/ambr.v6i2.475
Zanatto, C., Catalão ?Lopes, M., Pina, J. P., & Carrilho?Nunes, I. (2023). The impact of ESG news on the volatility of the Portuguese stock market—Does it change during recessions? Business Strategy and the Environment, 32 (8), 5821–5832. https://doi.org/10.1002/bse.3450
Zhou, D., & Zhou, R. (2021). ESG Performance and Stock Price Volatility in Public Health Crisis: Evidence from COVID-19 Pandemic. International Journal of Environmental Research and Public Health, 19 (1), 202. https://doi.org/10.3390/ijerph19010202
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Published
2024-02-08
How to Cite
Wahyudyatmika, M. B., & Astuti, C. D. (2024). The Influence of Environmental, Social, Governance, and Corporates Scandals on the Stock Volatility. Quantitative Economics and Management Studies, 5(1), 204–214. https://doi.org/10.35877/454RI.qems2390
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