The impact of ESG performance on stock volatilityin Asia-Pacific markets: the moderating rolesof corruption and economic development

This study examines the impact of Environmental, Social, and Governance (ESG) disclosures and scores on stock volatility in Asia-Pacific markets. The paper also assesses the moderating roles of corruption and economic development in this relationship. Using data from 2010 to 2022, the research employs the Fama-French multi-factor models to analyze the relationship between ESG metrics and stock idiosyncratic volatility. The findings indicate that both ESG disclosure and higher overall ESG scores significantly reduce stock volatility, underscoring the importance of transparency and robust ESG practices in mitigating firm-specific risks. Additionally, the study reveals that the social and governance pillars of ESG have a more pronounced effect on reducing volatility compared to the environmental pillar. The analysis of moderating factors shows that lower levels of corruption enhance the volatility-reducing benefits of ESG disclosures, while improvements in economic development amplify the volatility-reducing benefits of ESG performance. These results highlight the necessity for improved regulatory frameworks and a stronger corporate commitment to ESG principles in emerging markets. This research provides valuable insights for regulators, governments, companies, and investors, emphasizing the critical role of ESG practices in fostering market stability and promoting sustainable economic development in the Asia-Pacific region.