The role of ESG practices in mitigating stock market risk duringthe Palestinian-Israeli conflict: An event study in China

Aim: This study aimed to investigate the impact of the Palestinian-Israeli conflict on the China A-shares market, and the role of environmental, social and governance (ESG) practices in companies’ risk mitigation. Methodology: An event study methodology was employed to analyse the effect of the conflict on the A-shares market. The analysis was conducted using cumulative average abnormal returns (CAAR) for 5,041 companies across multiple trading days post-event. Additionally, multiple linear regression models were utilised to explore the relationship between cumulative abnormal returns (CAR), companies’ financial performance, and their ESG scores. Results: The empirical results revealed significantly negative CAAR on the 1st, 3rd, 5th, 7th, and 10th trading days post-event, indicating a negative impact of this conflict on the A-shares market. The regression results further demonstrated a negative relationship between CAR and companies’ financial performance, while CAR and ESG scores remained consistently positive. Implications and recommendations: The findings suggest that during geopolitical conflicts the market may experience heightened panic, adversely affecting stock returns, however companies with strong ESG governance tended to exhibit more stable stock returns. These results offer insights for both researchers and practitioners concerning the role of ESG practices in mitigating the adverse effects of geopolitical conflicts on stock returns. Originality/value: This study provides new evidence on the resilience of companies with strong ESG governance during geopolitical conflicts, contributing to the understanding of the interplay between ESG practices and stock market performance in geopolitical conflicts.