The Motivating Role of Sentiment in ESG Performance: Evidence from Japanese Companies

26 Pages Posted: 30 Jun 2021 Last revised: 1 Jul 2021

See all articles by Ngoc Vuong

Ngoc Vuong

Hiroshima University - Graduate School of Social Sciences

Yoshihisa Suzuki

Hiroshima University

Date Written: June 30, 2021

Abstract

The paper investigates investor sentiment’s role in boosting Japanese companies to enhance their environmental, social, and corporate governance (ESG) performance. Using ESG scores of 367 firms between 2005 and 2019 from the ASSET4 database, we find that negative sentiment in the previous year, both firm and market level, can be a stimulation for the company’s commitments to its ESG activities next year. Notably, the moderating effect of the business sector and economic cycle on the sentiment-ESG inference are detected in our study differentiating between corporate and market sentiment, which have never been reported before. In detail, we discover that the impact of firm-specific sentiment is less pronounced for high-sensitive ESG firms. On the other hand, the driving force of market sentiment on corporate social behaviors weakens when economic recessions happen. Our results are robust after controlling for potential endogeneity issues and using alternative proxies for market sentiment.

Keywords: Firm-specific and Market Sentiment, Corporate Social Responsibility, ESG Performance, Business Sector, Economic Cycle

JEL Classification: G30, G40, M14

Suggested Citation

Vuong, Ngoc and Suzuki, Yoshihisa, The Motivating Role of Sentiment in ESG Performance: Evidence from Japanese Companies (June 30, 2021). East Asian Economic Review Vol. 25 No. 2 (June 2021) 125-150, https://dx.doi.org/10.11644/KIEP.EAER.2021.25.2.393, Available at SSRN: https://ssrn.com/abstract=3876823

Ngoc Vuong (Contact Author)

Hiroshima University - Graduate School of Social Sciences ( email )

Hiroshima
Japan

Yoshihisa Suzuki

Hiroshima University ( email )

1-2-1 Kagamiyama
Higashi-Hiroshima
Japan
0825426973 (Phone)
730-0053 (Fax)

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