Does ESG Contribute to Pump-and-Dump Schemes of Insider Investors on the Stock Market?

Abstract This study examines the role of environmental, social, and governance (ESG) disclosures in insider-driven pump-and-dump stock price manipulation. Using a unique hand-collected dataset of 166 court-confirmed manipulation cases in the Taiwanese stock market from 2010 to 2024, we investigate whether ESG disclosures are strategically timed to facilitate insider trading. Firm-level ESG scores are obtained from Refinitiv, while ESG-related disclosure events are identified from regulatory announcements and news sources. We employ event-study analysis and panel logit regression models with insider trading behavior, and the timing of ESG disclosures around manipulation periods. The results show that manipulated firms exhibit significantly higher ESG scores than matched control firms. During manipulation episodes, firms with high ESG scores experience substantially larger cumulative abnormal returns than low-ESG firms. Logit regressions further indicate that the probability of ESG disclosure increases significantly prior to and during manipulation periods, particularly when insider buying intensifies, while ESG disclosures decline following insider selling. Policy implications include incorporating ESG disclosure patterns into market surveillance, strengthening ex-post verification of ESG announcements, and enhancing investor education to distinguish ESG disclosure from ESG performance.