ESG Performance and Stock Idiosyncratic Volatility

Focusing on ESG-responsible investment, this paper identifies the causal effect of ESG performance on stock idiosyncratic volatility in a typical emerging market, China. Based on the data of A-share listed firms from 2012 to 2022, we find that the ESG performance of listed companies significantly reduces stock idiosyncratic volatility, suggesting that ESG investment can provide a more transparent information environment for the market, thereby reducing firm idiosyncratic risk. Mechanism analysis found that ESG performance relies on mechanisms that inhibit management's earnings management motives and increase analyst attention to the impact of stock idiosyncratic volatility of listed companies.