Weathering the Storm: The Role of ESG Performance and Firm Fundamentals in Explaining Stock Returns During the Covid-19 Pandemic
(2025) IBUH19 20251Department of Business Administration
- Abstract (Swedish)
- This study investigates whether firms with higher ESG scores showed greater financial resilience measured by reduced downside risk and superior performance outcomes during the COVID-19 market shock specifically in the Nordic region. Conducted by drawing on the theories stakeholder theory, and the risk management hypothesis. It examined if ESG attributes could serve insulatory effects by preserving equity value in times of crisis. The empirical analysis was based on a cross sectional regression of 145 Nordic firms, and found no statistically significant relationship between ESG levels and stock returns during the pandemic. These results partially contrasts with previous studies which suggest that ESG acts as a performance enhancer during... (More)
- This study investigates whether firms with higher ESG scores showed greater financial resilience measured by reduced downside risk and superior performance outcomes during the COVID-19 market shock specifically in the Nordic region. Conducted by drawing on the theories stakeholder theory, and the risk management hypothesis. It examined if ESG attributes could serve insulatory effects by preserving equity value in times of crisis. The empirical analysis was based on a cross sectional regression of 145 Nordic firms, and found no statistically significant relationship between ESG levels and stock returns during the pandemic. These results partially contrasts with previous studies which suggest that ESG acts as a performance enhancer during market turmoil. Which is seen consistent within risk management theory, the analysis found that higher ESG scores were associated with lower systematic risk (beta), indicating that ESG could act as a stabilizing tool by reducing volatility rather than directly increasing short-term returns. Out of the financial variables tested, leverage carried the greatest importance as a negative predictor of returns, highlighting the importance of financial flexibility during exogenous shocks. On the other hand, Tobin’s Q was the strongest predictor of stock performance, supporting the idea that strong investor belief in intangible assets such as brand and innovation capacity as well as growth expectations were a kind of cushion during crises. These findings find that ESG integration in firms may enhance long-term stakeholder relationships and risk mitigation. However their immediate impact on stock returns during heavy market distress is limited, specifically in the conducted environment of the Nordics, where baseline regulatory ESG standards are already high. The results contribute to the expanding body of literature that is needed to understand ESG’s role in the multifaceted landscape of firm performance. Instead of viewing ESG as a standalone metric for improved financial performance in all circumstances, this study puts ESG instead as one of the components of organizational resilience. As it underscores that in times of heightened uncertainty, traditional financial metrics, in particular leverage and valuation remain decisive tools in explaining performance between firms. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9210456
- author
- Lagerbielke, Kristofer Johan Axel LU ; Romare, Totte LU and Anastasiades, Nikitas LU
- supervisor
- organization
- course
- IBUH19 20251
- year
- 2025
- type
- M2 - Bachelor Degree
- subject
- keywords
- Environmental, Social, Governance (ESG), COVID-19, Stock Returns, Risk Management, Nordic Markets, Tobin’s Q, Leverage
- language
- English
- id
- 9210456
- date added to LUP
- 2025-08-27 14:54:00
- date last changed
- 2025-08-27 14:54:00
@misc{9210456,
abstract = {{This study investigates whether firms with higher ESG scores showed greater financial resilience measured by reduced downside risk and superior performance outcomes during the COVID-19 market shock specifically in the Nordic region. Conducted by drawing on the theories stakeholder theory, and the risk management hypothesis. It examined if ESG attributes could serve insulatory effects by preserving equity value in times of crisis. The empirical analysis was based on a cross sectional regression of 145 Nordic firms, and found no statistically significant relationship between ESG levels and stock returns during the pandemic. These results partially contrasts with previous studies which suggest that ESG acts as a performance enhancer during market turmoil. Which is seen consistent within risk management theory, the analysis found that higher ESG scores were associated with lower systematic risk (beta), indicating that ESG could act as a stabilizing tool by reducing volatility rather than directly increasing short-term returns. Out of the financial variables tested, leverage carried the greatest importance as a negative predictor of returns, highlighting the importance of financial flexibility during exogenous shocks. On the other hand, Tobin’s Q was the strongest predictor of stock performance, supporting the idea that strong investor belief in intangible assets such as brand and innovation capacity as well as growth expectations were a kind of cushion during crises. These findings find that ESG integration in firms may enhance long-term stakeholder relationships and risk mitigation. However their immediate impact on stock returns during heavy market distress is limited, specifically in the conducted environment of the Nordics, where baseline regulatory ESG standards are already high. The results contribute to the expanding body of literature that is needed to understand ESG’s role in the multifaceted landscape of firm performance. Instead of viewing ESG as a standalone metric for improved financial performance in all circumstances, this study puts ESG instead as one of the components of organizational resilience. As it underscores that in times of heightened uncertainty, traditional financial metrics, in particular leverage and valuation remain decisive tools in explaining performance between firms.}},
author = {{Lagerbielke, Kristofer Johan Axel and Romare, Totte and Anastasiades, Nikitas}},
language = {{eng}},
note = {{Student Paper}},
title = {{Weathering the Storm: The Role of ESG Performance and Firm Fundamentals in Explaining Stock Returns During the Covid-19 Pandemic}},
year = {{2025}},
}