For firms listed in the KOSPI market during 2011 to 2018, we investigate the effects of ESG (environmental, social, and corporate governance) grades for evaluating firms’ CSR performance on excess returns. We find that the changes in ESG ratings have statistically significant short-term effects on the excess returns. However, their impacts on short-term excess returns decrease soon and turn negative in three years. This result suggests that investors in the Korean stock market does not view corporate CSR activities as a means of increasing firm value over a long period of time. From the changes in signs of the coefficients over the period, positive in the year and year after, no effects in the second year and negative in the third year and after, we can infer the short-term oriented market sentiments of investors might worsen corporate performances of those firms in the stock market in the long-run.​

Keywords ESG, excess returns, long-term returns, changes in ESG grades