Size and ESG premiums: Evidence from Chinese A-share market

We examined environmental, social, and governance (ESG) pricing in the Chinese A-share market. The results indicate that, on average, investors holding stocks with high ESG scores do not earn higher abnormal returns. Conversely, stocks with low ESG scores perform better. In terms of ESG components, the ESG discount in the current Chinese A-share market is primarily manifested as a governance discount. On the other hand, we investigated the sources of ESG discounts. The findings reveal that the ESG discount is unrelated to most risk characteristic variables but is associated with size, liquidity, and investors’ ESG preferences, with size having the greatest impact. Based on our results, we suggested that for small-scale companies, investors may view good ESG performance as a signal of risk mitigation; for large-scale companies, good ESG performance may be viewed as a value signal.