ESG and stock market performance during COVID-19 : an empirical analysis of Nordic publicly listed firms in the COVID-19 stock market

Abstract

In the wake of the COVID-19 stock market crash, the debate over ESG’s ability to preserve shareholder value through turbulent times has received increasing attention. In this thesis we analyze the effect of ESG on stock market performance during the COVID-19 Nordic stock market, and whether ESG acted as a resilience factor. We test 188 listed Nordic firms during the crisis from February 19 to March 23 and the rebound period from March 23 to June 5. In our first model, a cross-sectional model with Buy-and-Hold Abnormal Returns, we find a neutral relationship between ESG and stock market performance during the crisis, but a negative relationship during the rebound, which we believe can be explained by market sentiment. A second model, a panel data model with fixed effects, confirms these results and finds a differential effect of ESG when comparing the rebound to ordinary times. Amongst the three ESG dimensions, our findings indicate that the Environmental dimension played a main role in the negative effect during the rebound. Our results are robust to multiple tests, but the results are limited to ESG-scored, Nordic firms. Further, we identify potential issues of sampling bias for ESG-rated firms, which should be further explored in future research.