Corporate social responsibility (CSR) and investor psychology: Do environmentally friendly companies generate more stable shareholder sentiment

Purpose: This study investigates whether environmentally responsible companies generate more stable shareholder sentiment compared to their less environmentally conscious counterparts, addressing a critical gap in understanding the psychological mechanisms through which environmental performance influences investor behavior. Methodology: Using a comprehensive dataset of 2,458 firm-year observations from 351 companies across five industries during 2018-2024, This study employs panel regression analysis with instrumental variable estimation to examine the relationship between multidimensional environmental performance and sentiment stability. Environmental performance is measured across four dimensions: emissions reduction, resource efficiency, environmental management, and climate initiatives. Sentiment stability captures volatility, persistence, and recovery dynamics of investor emotional responses derived from social media analytics and traditional sentiment indicators. Findings: Results demonstrate a significant positive relationship between environmental performance and sentiment stability (β = 0.153, p < 0.01). Environmental management systems exhibit the strongest influence (β = 0.156), followed by resource efficiency (β = 0.124), indicating investors prioritize systematic governance structures over specific outcomes. Market volatility significantly moderates this relationship, with high environmental performers maintaining sentiment stability during turbulent periods (10.3% decline) compared to low performers (35.4% decline), confirming environmental responsibility's "safe haven" effect. Practical Implications: Environmental initiatives represent strategic investments in investor psychology rather than mere compliance activities. Companies should prioritize environmental management systems and operational efficiency to maximize sentiment stability benefits. For investors, environmental performance serves as a risk mitigation tool, particularly during volatile market conditions.