A Study on the Mechanism of ESG Performance’s Impact on Stock Returns: A Dual-Mediating Model Based on Total Asset Turnover and Financing Constraints

Abstract

With the rise of the concept of sustainable investment, the relationship between the performance of environmental, social, and governance (ESG) and stock returns has gradually attracted attention. However, most of the research so far only focuses on the direct impact of ESG on stock returns, or a single intermediary approach. The research on the communication mechanism behind it, especially the chain of multiple intermediaries, is not enough. This paper investigates two important issues. First, whether the total asset turnover is a complete intermediary or a partial intermediary in the process of transferring ESG results to stock returns. Secondly, whether Whited-Wu Index (WW Index) is a complete intermediary or a partial intermediary is the next way to transfer from total assets to stock returns. Therefore, this study takes 50 listed companies in China A-share medical field from 2011 to 2020 as samples, and makes a research on “ESG\rightarrow total asset turnover\rightarrow WW Index\rightarrow stock returns”. In this study, the procedure of mediation analysis is used to investigate the actual data in fixed-effects panel regression. Through practical investigation, total asset turnover has played a part in mediating between ESG performance and stock returns. In addition, WW Index also supports the partial impact of total asset turnover on stock returns, which accounts for about 30.3% of the total. This paper reveals the chain way that ESG affects stock returns through operational efficiency and financing constraints, and helps investors improve the way of selecting ESG-related varieties, as well as enterprises.