Iranian Journal of Accounting, Auditing and Finance

Iranian Journal of Accounting, Auditing and Finance

The Impact of ESG Performance on Capital Market Sensitivity

Document Type : Review article

Authors
Behzad Kardan 1
Hamideh Nazaridavaji 2
1 Assistant Professor, Department of Accounting, Faculty of Accounting, Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran
2 PHD Student of Accounting, Ferdowsi University of Mashhad, Mashhad, Iran
10.22067/ijaaf.2026.48066.1621
Abstract
This study examines the effect of environmental, social, and governance (ESG) performance on capital market sensitivity (CMS) among firms listed on the Tehran Stock Exchange. To assess how ESG performance influences firms' stock responses to market fluctuations, CMS was evaluated using three key indicators: beta, price volatility, and the Sharpe ratio. An analysis of 151 companies listed on the Tehran Stock Exchange from 2014 to 2023 was conducted in this quantitative, descriptive-analytical study. In addition to analyzing the direct effects of ESG performance on CMS, advanced econometric models were used to examine the moderating effects of inflation and economic sanctions. There was a statistically significant negative correlation between ESG performance and sensitivity to the capital markets. Stock price volatility was lower, and Sharpe ratios were greater for companies that performed well on ESG dimensions. In addition, the research on inflation and penalty intensity moderating effects showed that in bad political and economic circumstances, the impact of ESG performance on market sensitivity changes, either amplifying or diminishing, depending on the environmental factors. By concentrating on the Iranian capital market and incorporating the moderating effects of economic and political factors into the relationship between ESG performance and CMS, this study extended the existing literature on ESG and capital market risk management in emerging economies. Moreover, the study's applicability to investors and corporate managers made it more relevant.
Keywords
ESG
CMS
Subjects
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