Motives for environmental and social engagement and stock liquidity: The moderating role of sustainability committees

Abstract

While stock liquidity has long been a vital consideration in stock markets, environmental, social and governance (ESG) performance has become a growing consideration due to its numerous benefits to companies and society. However, there is limited research on whether corporate motivations to engage in ESG activities affect stock liquidity. We examine this relationship in the context of the Australian Securities Exchange (ASX) by studying the role of three motivations (strategic, altruism, or greenwashing) for company engagement in ESG activities in explaining stock liquidity. We also examine the role of sustainability committees in explaining stock liquidity. Using companies included in the S&P ASX 300 from 2009 to 2018, a positive association is found between stock liquidity and a strategic motivation for environmental and social engagement and sustainability committee presence. An unexpected finding is that sustainability committee formation can mislead investors to reward a greenwashing motivation by improving stock liquidity. These findings provide valuable new insights into motives to engage particularly with the “E” and “S” in ESG and sustainability committees' role in improving stock liquidity.