The icing on the cake: ESG effect on the quality factor portfolios

Chia-Wu Lu, Hsueh-Ling Wu and Yu-Hsuan Su

Finance Research Letters, 2024, vol. 70, issue C

Abstract: This study investigates the effect of Environmental, Social, and Governance (ESG) on the quality portfolios in Taiwanese market. The quality factor, which aggregates the character of profitability, growth, safety, and payout, is one of crucial factors in Warren Buffet's investment strategy suggested by literature. Our empirical results show that the beneficial effect of ESG is not prevailing, only significantly positively for the high-quality stocks, rather than the lower-quality ones, implying the market investors' willingness to pay a premium for ESG only for high quality firms. This “icing on the cake” phenomenon exists both on stock returns and also Tobin's Q.

Keywords: Quality factor; ESG score; Taiwan sustainability assessment (SEED) (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013333

DOI: 10.1016/j.frl.2024.106304

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