The impact of ESG inclusion on price, liquidity and financial performance of Indian stocks: Evidence from stocks listed in BSE and NSE ESG indices

  • Received August 14, 2022;
    Accepted October 4, 2022;
    Published October 17, 2022
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.19(4).2022.04
  • Article Info
    Volume 19 2022, Issue #4, pp. 40-50
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This work is licensed under a Creative Commons Attribution 4.0 International License

In recent years, investors have perceived that Environmental, Social, and Governance (ESG) practices significantly increase the value of companies’ stocks. This study investigates the impact of ESG inclusion on the price, liquidity and financial performance of stocks listed in the Indian ESG indices. Two major Indian benchmark ESG Indices, the BSE100 ESG and Nifty 100 ESG, were considered for the study. A total sample of 64 firms from the BSE100 ESG index and 86 firms from the Nifty100 ESG index were selected. The market model of the event study methodology was employed to measure AAR and CAAR and to demonstrate the effect before and after the inclusion of the stocks in the ESG indices. The empirical results show a highly significant negative AAR on the announcement day, i.e., on (day = 0) for BSE100 ESG index stocks and an insignificant positive AAR for Nifty100 ESG index stocks. In addition, the results also document a significant negative CAAR for BSE 100 ESG stocks and a positive insignificant CAAR for Nifty100 ESG stocks. Moreover, the liquidity test results revealed a considerable liquidity enhancement in the stocks posts their inclusion in the BSE100 ESG. At the same time, there were no significant changes in the liquidity ratio of stocks after being included in the Nifty100 ESG index. This study concludes that there will be a substantial improvement in the companies’ financial performance as indicated by EPS and market capitalization after their inclusion in the ESG indices.

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    • Table 1. Table exhibiting the variables of the study and its respective acronyms and measurements
    • Table 2. Mutual fund schemes tracking NIFTY 100 ESG indices
    • Table 3. Firm performance during the pre-and post-inclusion period of the BSE100 ESG Index and NIFTY ESG100 stocks
    • Table 4. Average abnormal return (AAR) for the event window
    • Table 5. Cumulative average abnormal return of BSE ESG 100 and Nifty ESG 100
    • Table 6. Stock liquidity for the pre- and post-event window
    • Conceptualization
      Suresha B., Krishna T. A.
    • Data curation
      Suresha B., Srinidhi V. R., Manu K. S.
    • Methodology
      Suresha B., Srinidhi V. R.
    • Project administration
      Suresha B.
    • Validation
      Suresha B.
    • Writing – original draft
      Suresha B., Srinidhi V. R., Dippi Verma, Krishna T. A.
    • Supervision
      Srinidhi V. R., Manu K. S.
    • Writing – review & editing
      Srinidhi V. R., Dippi Verma, Manu K. S., Krishna T. A.
    • Formal Analysis
      Dippi Verma
    • Investigation
      Dippi Verma, Manu K. S., Krishna T. A.
    • Resources
      Dippi Verma, Manu K. S., Krishna T. A.