Author: by Juhee Hwang, Hyuna Kim and Dongjin Jung
Summary:
This study examines the effect of a firms environmental, social, and governance (ESG) activities on its financial performance during the acute uncertainty caused by the COVID-19 pandemic. Due to the COVID-19 pandemic, most Korean firms suffered unexpected difficulties in their business activities in early 2020, and their financial performance deteriorated significantly. The purpose of this study is to empirically analyze whether a firms ESG activities affect its financial performance during a business crisis. The results show that, in the first quarter of 2020, when the impact of the COVID-19 pandemic occurred, firms earnings dropped significantly; however, we found that the higher the performance of ESG activities, the smaller the decline in earnings. The results imply that, in an environment of uncertainty, the performance of a firms ESG activities is reflected in its financial outcomes. This result implies that trust and bond between firms and stakeholders, as formed through investments in social capital, are rewarded when the overall level of sustainability in markets is negatively impacted. In addition, our results suggest that the performance of nonfinancial activities is useful information for stakeholders decision making in relation to market uncertainty. View Full-Text
