The Role of ESG Factors in Enhancing Stock Liquidity and Analyst Forecast Accuracy: Evidence from the Johannesburg Stock Exchange
Keywords
ESG, liquidity, forecast accuracy, COVID-19Abstract
The purpose of this study is to examine the impact of environmental, social and governance (ESG) factors on stock liquidity and analyst forecast accuracy on the Johannesburg Stock Exchange (JSE) listed firms for the period 2012-2024. The empirical results reveal that market liquidity is positively associated with ESG and its components (environmental (ENV) and governance (GOV). Additionally, when investigating the relationship between ESG and analysts' forecast accuracy, we find that ENV and GOV scores improve forecast accuracy, while social (SOC) scores have a negative impact. Moreover, the results reveal that ESG disclosure serves as a critical strategic tool for maintaining financial stability by reducing BAS and ERROR during the pandemic crisis (COVID_19). The study highlights the importance of ESG in enhancing liquidity and supporting sustainable finance, by providing significant implications for investors, analysts, and corporate stakeholders.
References
Ahmad, H., Yaqub, M., & Lee, S.H. (2024). Environmental-, social-, and governance-related factors for business investment and sustainability: A scientometric review of global trends. Environment, Development and Sustainability, 26(2), 2965-2987. https://doi. 10.1007/s10668-023-02921-x.
Amihud, Y. (2002). Illiquidity and stock returns: cross-section and time-series effects. Journal of financial markets, 5(1), 31-56. https://doi.org/10.1016/S1386-4181(01)00024-6.
Barth, M.E., Cahan, S.F., Chen, L., & Venter, E.R. (2017). The economic consequences associated with integrated report quality: Capital market and real effects. Accounting, Organizations and Society, 62, 43–64. https://doi.org/10.1016/j.aos.2017.08.005.
Bernardi, C., & Stark, A.W. (2018). Environmental, social and governance disclosure, integrated reporting, and the accuracy of analyst forecasts. The British accounting review, 50(1), 16-31. https://doi.org/10.1016/j.bar.2016.10.001.
Beyer, A., Cohen, D.A., Lys, T.Z., & Walther, B.R. (2010). The financial reporting environment: Review of the recent literature. Journal of accounting and economics, 50(2-3), 296-343. https://doi.org/10.1016/j.jacceco.2010.10.003.
Boujelben, N., Hadriche, M., & Makni Fourati, Y. (2024). Capital market effects of integrated reporting quality: evidence from South African context. Journal of Financial Reporting and Accounting. https://doi.org/10.1108/JFRA-06-2023-0314.
Bushman, R., Chen, Q., Engel, E., & Smith, A. (2004). Financial accounting information, organizational complexity and corporate governance systems. Journal of accounting and economics, 37(2), 167-201. https://doi.org/10.1016/j.jacceco.2003.09.005.
Cheng, M., Dhaliwal, D.S., & Neamtiu, M. (2011). Asset securitization, securitization recourse, and information uncertainty. The Accounting Review, 86(2), 541-568. https://doi.org/10.2308/accr.00000020.
Cho, S.Y., Lee, C., & Pfeiffer Jr, R.J. (2013). Corporate social responsibility performance and information asymmetry. Journal of Accounting and Public Policy, 32(1), 71-83. https://dx.doi.org/10.2139/ssrn.2129509.
Coram, P.J., Mock, T.J., & Monroe, G.S. (2011). Financial analysts' evaluation of enhanced disclosure of non-financial performance indicators. The British Accounting Review, 43(2), 87-101. https://doi.org/10.1016/j.bar.2011.02.001.
Dhaliwal, D.S., Radhakrishnan, S., Tsang, A., & Yang, Y.G. (2012). Nonfinancial disclosure and analyst forecast accuracy: International evidence on corporate social responsibility disclosure. The accounting review, 87(3), 723-759. https://10.2139/ssrn.1596458.
Ghosh, D., & Wu, A. (2012). The effect of positive and negative financial and nonfinancial performance measures on analysts' recommendations. Behavioral Research in Accounting, 24(2), 47-64. https://doi.org/10.2308/bria-10283.
Hair, J.F. (2011). Multivariate data analysis: An overview. International encyclopedia of statistical science, 904-907. https://doi.org/10.1007/978-3-642-04898-2_395.
Harjanto, K. (2023). The analysis of financial reporting quality and firm value. Copernican Journal of Finance & Accounting, 12(3), 27-41. https://doi.org/10.12775/CJFA.2023.014.
He, F., Feng, Y., & Hao, J. (2023). Corporate ESG rating and stock market liquidity: Evidence from China. Economic Modelling, 129, 106511. https://doi.org/10.1016/j.econmod.2023.106511.
Kim, J.W., & Park, C.K. (2023). Can ESG performance mitigate information asymmetry? Moderating effect of assurance services. Applied Economics, 55(26), 2993-3007. https://doi.org/10.1080/00036846.2022.2107991.
Lang, M.H., & Lundholm, R.J. (1996). Corporate disclosure policy and analyst behavior. Accounting review, 467-492. https://doi.org/10.2308/TAR-9611271989.
Leuz, C., & Verrecchia, R.E. (2000). The economic consequences of increased disclosure. Journal of accounting research, 91-124. https://doi.org/10.2307/2672910.
Luo, K., & Wu, S. (2022). Corporate sustainability and analysts' earnings forecast accuracy: Evidence from environmental, social and governance ratings. Corporate Social Responsibility and Environmental Management, 29(5), 1465-1481. https://doi.org/10.1002/csr.2284.
Lys, T., & Soo, L.G. (1995). Analysts' forecast precision as a response to competition. Journal of Accounting, Auditing & Finance, 10(4), 751-765. https://doi.org/10.1177/0148558X9501000404.
Lys, T., Naughton, J.P., & Wang, C. (2015). Signaling through corporate accountability reporting. Journal of accounting and economics, 60(1), 56-72. https://doi.org/10.1016/j.jacceco.2015.03.001.
Miralles-Quirós, M.M., Miralles-Quirós, J.L., & Valente Gonçalves, L.M. (2018). The value relevance of environmental, social, and governance performance: The Brazilian case. Sustainability, 10(3), 574. https://doi.org/10.3390/su10030574.
Nurazi, R., Usman, B., & Kananlua, P.S. (2015). Does bid/ask spread react to the increase of internet search traffic. International Research Journal of Business Studies, 8(3), 181-196. https://doi.org/10.21632/irjbs.8.3.181-196.
Primacintya, V.A., & Kusuma, I.W. (2025). Environmental, social and governance (ESG) performance and earnings management: the role of gender diversity. Asian Journal of Accounting Research. https://doi.org/10.1108/AJAR-12-2023-0414.
Pyka, I., Karkowska, R., & Nocoń, A. (2025). ESG activities and their influence on commercial banks’ profitability and financial stability. Journal of Entrepreneurship, Management and Innovation, 21(4), 54-75. https://doi.org/10.7341/20252143.
Rossi, P., & Candio, P. (2023). The independent and moderating role of choice of non-financial reporting format on forecast accuracy and ESG disclosure. Journal of Environmental Management, 345, 118891. https://doi.org/10.1016/j.jenvman.2023.118891.
Siew, R.Y., Balatbat, M.C., & Carmichael, D.G. (2016). The impact of ESG disclosures and institutional ownership on market information asymmetry. Asia-Pacific Journal of Accounting & Economics, 23(4), 432-448. https://doi.org/10.1080/16081625.2016.1170100.
Sriani, D., & Agustia, D. (2020). Does voluntary integrated reporting reduce information asymmetry? Evidence from Europe and Asia. Heliyon, 6(12). https://doi.org/10.1016/j.heliyon.2020.e05602.
Tiwary, N., & Mishra, A.K. (2025). Operational Risk and ESG Performance in Indian Banks: the Moderating Role of CEO-Chairperson Duality. Copernican Journal of Finance & Accounting, 14(3). https://doi.org/10.12775/CJFA.2025.014.
Usman, B., & Tandelilin, E. (2014). Internet search traffic and its influence on liquidity and returns of Indonesia stocks: An empirical study. Journal of Indonesian Economy and Business, 29(3), 203. https://doi.org/10.22146/jieb.6477.
Usman, B., Bernardes, O.T.F., & Kananlua, P.S. (2020). On the nexus between CSR practices, ESG performance, and asymmetric information. Gadjah Mada International Journal of Business, 22(2), 151-177. https://doi.org/10.22146/gamaijb.54053.
Verrecchia, R.E. (2001). Essays on disclosure. Journal of accounting and economics, 32(1-3), 97-180. https://doi.org/10.1016/S0165-4101(01)00025-8.
Published
How to Cite
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.
Stats
Number of views and downloads: 0
Number of citations: 0
