Open Access Article Economics Financial Management

ESG and Administrative Costs in Equity Trading: Evidence from China

Authors

Lanchun Huang(1), Zhan Wang(2)

  1. Interdisciplinary Studies College, Payap University
  2. Research Center of Finance, Shanghai Business School, Shanghai

https://doi.org/10.36923/iefrontiers.v27i2.271

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Abstract

Recent findings suggest that firms with higher Environmental, social, and governance (ESG) scores may experience lower stock returns, contrary to the common belief that better ESG performance enhances market reputation and stock returns. This study aims to investigate the relationship between ESG performance, management costs, and stock returns by introducing an "ESG-cost framework." The framework proposes that the costs incurred in implementing ESG practices can reduce revenue, offsetting the positive effects of strong ESG performance. Using an empirical analysis of firms based on both their ESG scores and management costs, the study finds that firms with low management costs gain the most from high ESG scores, while those with high costs may see diminished stock returns despite strong ESG performance. Additionally, the study proposes trading strategies that integrate ESG scores and cost considerations, demonstrating that these strategies yield better returns than traditional market indices. These findings offer a new perspective on ESG decision-making and provide valuable insights for constructing effective trading strategies.

Article information

Keywords
ESG PerformanceESG-Cost FrameworkAdministrative CostsReturn PredictionPortfolio Stock SelectionCorporate GovernanceSustainable Investing
Section
Articles
Issue
Vol. 27 No. 2 (2024)
Submitted
August 22, 2024
Published
October 20, 2024
Corresponding author
Zhan Wang
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How to Cite

Huang, L., & Wang, Z. (2024). ESG and Administrative Costs in Equity Trading: Evidence from China. Innovation Economics Frontiers, 27(2), 98-109. https://doi.org/10.36923/iefrontiers.v27i2.271

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