COVID‐19 and ESG preferences: Corporate bonds versus equities

• Published date: 01 June 2022
• Author: Amanjot Singh
• Date: 01 June 2022
• DOI: http://doi.org/10.1111/irfi.12351

SHORT REPORT

COVID-19 and ESG preferences: Corporate bonds

versus equities

Amanjot Singh

Deakin University, Melbourne, Australia

Correspondence

Amanjot Singh, Deakin University, Melbourne

3125, Australia.

Email: amanjotsingh@deakin.edu.au

Abstract

I examine investors' within ESG investment preferences

during the COVID-19 pandemic by investigating the return

spillover effects across the three different corporate bonds

and equities-based investment strategies. Investors prefer

making investments in ESG leaders in the investment-grade

corporate bond market over ESG leaders in the equity and

high yield corporate bond markets during times of uncer-

tainty. It suggests that capital flows away from high yield

corporate bond and equity markets to the investment-grade

corporate bond market. Investors find refuge in firms with

relatively higher ESG ratings and creditworthiness in the

fixed income market over the equity market during crisis

periods.

KEYWORDS

corporate bonds, COVID-19, equity, ESG leaders

JEL CLASSIFICATION

G10; G11; G14

1|INTRODUCTION

Investors pay additional attention to corporate fundamentals during an economic slowdown (Hirshleifer, 2008; Lins,

Servaes, & Tamayo, 2017; Nofsinger & Varma, 2014). Firms with strong fundamentals and long-run sustainability are

expected to be much more resilient to wither the financial disturbances in an efficient manner (Pastor &

Vorsatz, 2020; Singh, 2020). Hence, investors become more conscious to safer investment strategies, like the envi-

ronmental, social and governance-based investment strategies (ESG), to prevent their exposure from downside risk

in the market (Coudert & Gex, 2008; Singh, 2020).

Received: 28 December 2020 Revised: 18 March 2021 Accepted: 7 April 2021

DOI: 10.1111/irfi.12351

© 2021 International Review of Finance Ltd.

298 International Review of Finance. 2022;22:298–307.

wileyonlinelibrary.com/journal/irfi