Role of ESG Performance in Shaping Market Performance: Evidence from Indian Listed Firms
DOI:
https://doi.org/10.68219/hk2shh53Keywords:
dividend payout, price-to-earnings ratio, panel data, corporate governanceAbstract
In this paper, the relationship between the environmental, social and governance (ESG) performance and three market-oriented variables dividend payout (D/P) ratio, earnings per share (EPS) and price-to-earnings (P/E) ratio of the simulated sample of 100 listed Indian firms from 2018 to 2024 is explored. It provides an illustration of the extent to which overall ESG performance and its three components—environmental, social, and governance—may be related to firm-level market performance, once firm factors such as firm size, leverage, profitability, sales growth, cash holdings, firm age and time are controlled for in a fixed-effects panel regression. The hypothetical results suggest that the overall ESG scores are positively and statistically significantly correlated with the D/P ratio and EPS, while the correlation with P/E ratio is positive but not statistically significant. Overall, there is no clear evidence that either environmental or social performance are the strongest and most consistent positive predictors of D/P and EPS; however, governance is a positive predictor, as is the extent of the company's social performance, while environmental performance exhibits a mixed pattern and smaller negative association with D/P. Signaling, agency, stakeholder and resource-based perspectives are used to interpret the findings. Importantly, it is not observations from actual firms that are reported, but rather the data and estimated coefficients are illustrative; the results should therefore not be inferred as causal estimates in the Indian market. The paper is an empirical template that can be applied to actual data from firms.
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