How Are Business Strategy and ESG Performance Associated With Stock Liquidity? Global Insights

ABSTRACT This study examines whether business strategy is associated with stock liquidity and whether environmental, social, and governance (ESG) performance conditions this association. Using 58,638 firm‐year observations from 74 countries during 2008–2023, we find no significant association for the continuous strategy score. In categorical analyses, Defender firms exhibit higher illiquidity and Analyzer firms lower illiquidity, both at the 10% significance level, while no reliable average association is found for Prospectors. ESG performance is associated with lower illiquidity in the continuous‐score specification. Marginal‐effects analysis shows that ESG moderates these relationships asymmetrically: higher ESG reduces the Defender illiquidity disadvantage but attenuates the Analyzer liquidity advantage, while the Prospector marginal effect remains insignificant across observed ESG levels. The principal strategy‐specific and interaction patterns are broadly robust across alternative liquidity measures, lagged specifications, crisis‐period exclusions, country‐sample restrictions, log‐transformed illiquidity, and supplementary System GMM estimates.