This paper studies the effects of news regarding Corporate Social Responsibility (CSR) and Environment, Social and Governance (ESG) by examining a sample of Japanese firms that are newly selected as a component of the FTSE Blossom Japan Index (FBLSMJPN) over the period from September 2018 to December 2022.
The impacts are assessed in share price, trading volume, and liquidity.
The studies are beneficial to see whether corporate engagement in CSR and ESG activities has a value enhancing effect and, if any, to investigate the mechanism that underlies the implication.
This paper cannot find strong evidence that the inclusions in the FBLSMJPN affect both share price and liquidity in the long term. However, the analyses show that stocks of companies newly included in the index recognize a temporary rise in share prices and trading volumes.
The findings are consistent with the price pressure hypothesis (Harris & Gurel, 1986) that a transient increase in share prices is due to a shift in demand and stocks have downward sloping demand curves in the short run. Furthermore, this paper runs a regression using abnormal returns and firm level characteristics, including firm size, profitability, leverage, and employee productivity, in order to identify corporate factors influencing the investors’ initial reactions.
The analysis finds no clear evidence that the initial investors’ positive response is significantly related to the tested corporate features, implying that all of the firms newly included in the FBLSMJPN can experience a temporary increase in their stock prices.
08 February 2024