The Relationship between Sustainability Indices and Firm-Idiosyncratic Risk of Listed companies on the Stock Exchange of Thailand
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Abstract
This study aims to examine the relationship between sustainability indices and firm-idiosyncratic risk by analyzing a sample of publicly listed companies on the Stock Exchange of Thailand that have been assessed for their sustainability performance. The assessment includes environmental, social, and governance (ESG) performance scores, along with an overall ESG score obtained from the Refinitiv Eikon database, covering the period from 2018 to 2022 and comprising a total of 562 samples. The findings indicate that environmental, social, and governance performance scores are not significantly related to firm-idiosyncratic risk. This suggests that firm-idiosyncratic risk is specific to each company and may not be substantially influenced by ESG practices, which are more closely linked to broader systemic factors. When disaggregating the ESG score into its three components, the results show that environmental and social performance scores are not significantly related to firm-specific risk. However, governance performance scores exhibit a significant positive relationship with firm-idiosyncratic risk. This may be attributed to stock trading behaviors, wherein investors seek to invest in companies with good corporate governance but lack sufficient information, leading to increased stock price volatility. Furthermore, the study finds that companies operating in sensitive industries have significantly higher average ESG performance scores than those in non-sensitive industries.
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