Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns

Chun-Da Chen; Ching-Hui Joan Su; Ming-Hsiang Chen

doi:10.1016/j.jairtraman.2022.102229

Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns

J Air Transp Manag. 2022 Jul:102:102229. doi: 10.1016/j.jairtraman.2022.102229. Epub 2022 May 16.

Authors

Chun-Da Chen¹, Ching-Hui Joan Su², Ming-Hsiang Chen^{3

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Affiliations

¹ College of Business, Lamar University, Beaumont, TX, 77710, USA.
² Department of Apparel, Events, And Hospitality Management, College of Human Sciences, Iowa State University, Ames, IA, 50011-1078, USA.
³ School of Hospitality Business Management, Carson College of Business, Washington State University, Pullman, WA, 99164-4742, USA.
⁴ Tourism and Social Administration College, Nanjing Xiaozhuang University, Nanjing, 211171, China.
⁵ College of Tourism and Landscape Architecture, Guilin University of Technology, Guilin, 541006, China.

Abstract

Incorporating environmental-social-governance (ESG) into a company's operations is an innovation strategy for contemporary businesses and a countermeasure for airline companies under COVID-19's influence. This research employs an autoregressive jump intensity trend (ARJI-trend) model to analyze the effects of COVID-19 and ESG ratings on the stock performance of the U.S. airline industry. We find that the ARJI-trend model captures the short- and long-run impacts of COVID-19 and ESG on stock return dynamics. Moreover, short-run stock return volatility converges to the original equilibrium level faster when a company has a higher ESG score, implying that promoting ESG does offer a defense mechanism to airline companies and that ESG performance is suitable for integration into business operational goals. The results lay the groundwork for understanding how an ESG focus might help airline companies to suffer less of an economic/financial impact during crises such as the COVID-19 pandemic.

Keywords: Autoregressive jump intensity trend model; COVID-19; ESG; Environmental-social-governance; Risk management.