The Impact of COVID-19-Induced Sentiment on Firm Performance: The Moderating Impact of Sustainable ESG Activities

Abstract

This paper uses the data of nonfinancial firms from 49 countries to show that the benefits of improvements in COVID-19-induced sentiment accrue to firms that expend more resources on sustainable environmental, social, and governance (ESG) activities. The findings remain robust across various estimation strategies and across various subsamples. The findings also show that the social and environmental dimensions of ESG moderate the relationship between COVID-19-induced sentiment and firm performance. In contrast, the governance dimension has no significant impact. Our findings suggest that firms should prioritize the environmental and social dimensions of ESG to build resilience and protect themselves from adverse shocks.