Good morning,
I am trying to estimate the effect of a firms ESG Score on its Stock Price. I have a large dataset of all companies within the S&P 500, however I am struggling to formulate my model and choosing my control variables. I have created a correlation matrix and run a panel data regression. I would like to understand the logic behind choosing the control variables and the formulation of my model.
Below is the correlation Matrix
Below is the Panel Data Regression:
This shows what each Variable is:
From what I understand, I want my control variables to have a low correlation with "esgscore", but have a correlation with the "lsp", which is the Log of the Stock Price.
I would appreciate any feedback or recommendations on how to build my model!
Kind regards,
Derick
I am trying to estimate the effect of a firms ESG Score on its Stock Price. I have a large dataset of all companies within the S&P 500, however I am struggling to formulate my model and choosing my control variables. I have created a correlation matrix and run a panel data regression. I would like to understand the logic behind choosing the control variables and the formulation of my model.
Below is the correlation Matrix
| sp | ebit | tcap | current | qr | ltdp | tate | roe | roa | ta | esgscore | |
| sp | 1 | ||||||||||
| ebit | -0.0037 | 1 | |||||||||
| tcap | 0.0314 | -0.0057 | 1 | ||||||||
| current | 0.0427 | 0.102 | 0.6219 | 1 | |||||||
| qr | -0.0176 | 0.12 | 0.53 | 0.8452 | 1 | ||||||
| ltdp | -0.0707 | -0.1082 | -0.2524 | -0.3022 | -0.2953 | 1 | |||||
| tate | -0.0141 | -0.0364 | 0.069 | -0.057 | -0.0565 | 0.1876 | 1 | ||||
| roe | -0.0121 | 0.0034 | 0.0848 | -0.0132 | -0.0152 | 0.1264 | 0.9258 | 1 | |||
| roa | 0.1067 | 0.2606 | 0.495 | 0.4109 | 0.35 | -0.1809 | -0.0205 | 0.0246 | 1 | ||
| ta | -0.0226 | -0.0006 | -0.1041 | -0.1024 | -0.0255 | -0.0186 | -0.0021 | -0.0034 | -0.0617 | 1 | |
| esgscore | -0.078 | -0.015 | -0.1114 | -0.1983 | -0.1048 | 0.1787 | 0.0421 | 0.0194 | -0.0914 | 0.1764 | 1 |
Below is the Panel Data Regression:
| lsp | Coefficient | Std. err. | z | P>z | [95% conf. | interval] | |
| ebit | -0.1094329 | 0.0606259 | -1.81 | 0.071 | -0.22826 | 0.009392 | |
| tcap | -0.2657965 | 0.1900788 | -1.4 | 0.162 | -0.63834 | 0.106751 | |
| current | 0.0604384 | 0.0375471 | 1.61 | 0.107 | -0.01315 | 0.134029 | |
| qr | -0.0597498 | 0.0484727 | -1.23 | 0.218 | -0.15475 | 0.035255 | |
| ltdp | 0.0545947 | 0.1191632 | 0.46 | 0.647 | -0.17896 | 0.28815 | |
| tate | -0.0002566 | 0.0022631 | -0.11 | 0.910 | -0.00469 | 0.004179 | |
| roe | -0.0016039 | 0.0058455 | -0.27 | 0.784 | -0.01306 | 0.009853 | |
| roa | 0.4654144 | 0.2795494 | 1.66 | 0.096 | -0.08249 | 1.013321 | |
| ta | 6.52E-14 | 5.78E-13 | 0.11 | 0.910 | -1.07E-12 | 1.20E-12 | |
| esgscore | 0.0117663 | 0.0012669 | 9.29 | 0 | 0.009283 | 0.014249 | |
| _cons | 3.80707 | 0.1247927 | 30.51 | 0 | 3.562481 | 4.05166 | |
| sigma_u | 0.86507238 | ||||||
| sigma_e | 0.3397378 | ||||||
| rho | 0.86637472 | (fraction | of variance due | to | u_i) |
This shows what each Variable is:
| Variable Name | Variable Label |
| id | Identifier |
| idcode | Panel Data Version of Company Identifier |
| year | Year |
| Name | Company Name |
| sp | Stock price |
| ebit | EBIT Margin - % |
| tcap | Total Current Assets Percentage of Total Assets |
| current | Current Ratio |
| qr | Quick Ratio |
| ltdp | Long Term Debt Percentage of Total Capital |
| tate | Total Assets to Total Equity |
| roe | Return on Average Common Equity - %, TTM |
| roa | Return on Average Total Assets - %, TTM |
| ta | Total Assets |
| esgscore | ESG Score |
| esgcs | ESG Combined Score |
| social | Social Pillar Score |
| governance | Governance Pillar Score |
| environmental | Environmental Pillar Score |
| Sector | Sector that the Firm Operates in |
| SectorsCode | Encoded Sector |
| highesg | When ESG Score > 70 |
| lsp | Log of the Stock Price |
I would appreciate any feedback or recommendations on how to build my model!
Kind regards,
Derick
