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Corporate ESG Performance and Stock Market Liquidity: Study from Listed Manufacturing Companies

Author(s)

Mengyuan Nie*

Affiliation(s)

School of Economics, Northwest Normal University, Lanzhou, Gansu, China *Corresponding Author.

Abstract

The impact of firms' environmental, social and governance (ESG) performance, as an important dimension of corporate sustainability, on stock liquidity has been an important topic in capital market research. This study utilizes the data of listed Chinese manufacturing companies from 2018 to 2022, and adopts the ridge regression algorithm in machine learning to re-predict the ESG scores of firms, thus innovatively analyzing the specific impact of firms' ESG performance on stock liquidity and its potential mechanism. It is found that firms' ESG performance significantly enhances stock liquidity, and the above conclusion still holds after a series of robustness tests. Heterogeneity analysis shows that the effect of firms' ESG performance on stock liquidity is more significant among state-owned enterprises, capital-intensive firms, and firms with a high proportion of short-term institutional investors' shareholdings. Specifically for each dimension of ESG, environment (E), social responsibility (S) and corporate governance (G) all have significant positive impacts on stock liquidity, with the corporate governance dimension being the most significant. Heterogeneity analysis reveals that the enhancing effect of corporate ESG performance on stock liquidity is more significant among firms that are heavy polluters, have external social donation behaviors, and have two positions in management. This study provides a new perspective for understanding the drivers of corporate stock liquidity in the capital market, which is important for promoting corporations to enhance their capital market performance and thus achieve sustainable development.

Keywords

Manufacturing; Ridge Return; ESG Performance; Stock Liquidity

References

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