The Impact of ESG Scores on Stock Returns: An Analysis of Seasoned Equity Offerings’ European firms during Covid-19 Pandemic

Abstract

Seasoned equity offerings (SEOs) play a crucial role in securing sustainable capital structures for firms. However, these events are associated with costs and often results in the negative stock price reactions, as documented in literature and empirical research. Moreover, the finance sector has been increasingly focused on sustainability measured by Environmental, Social, and Governance (ESG) scoring. Previous studies have explored the influence of ESG factors on firm stock performance, but the impact of ESG factors on such corporate events within the context of difficult time remains unclear. Therefore, this study aims to shed light on the relationship between ESG scores and stock returns by using the sample data from 253 European firms that underwent SEOs during Covid-19 pandemic. The event study reveals significantly negative announcement period stock returns across most industries, which is consistent with prior studies on SEOs. However, little evidence is found to support the association between ESG scores and SEO returns, while firm characteristics and offering information are dominant factors. As a result, this master thesis provides suggestions to financial professionals on how to mitigate the negative market reaction and enhance their firm’s stock performance.