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Event-Study of ESG Controversies on Tadawul Issuers

Capital market evaluations of non-financial corporate incidents reveal critical insights into informational efficiency and institutional governance mechanisms. Event-study analysis of adverse sustainability announcements on the Saudi Stock Exchange captures immediate valuation shifts and cumulative abnormal returns across listed equities. The resulting empirical synthesis clarifies the extent to which emerging market investors penalize corporate controversies or treat them as strategic catalysts for governance reform.

معاينة المستند

هذه معاينة موجزة. تتضمن النسخة الكاملة نصاً موسعاً لجميع الأقسام، وخاتمة، وقائمة مراجع منسقة.

Master's Thesis

Degree:
Event-Study of ESG Controversies on Tadawul Issuers

Author:

Group

First M. Last

Advisor:

Dr. First Last

City, 2026

Contents

Introduction
1. Theoretical Foundations of Corporate Sustainability and Market Efficiency
1.1. Stakeholder and Legitimacy Theories in Emerging Capital Markets
1.2. The Semi-Strong Efficient Market Hypothesis and Corporate Disclosures
1.3. Information Asymmetry and the Reputational Repair Mechanism
2. Literature Review: ESG Disclosure, Negative Events, and Firm Valuation
2.1. Global Empirical Evidence on ESG Controversies and Risk Dynamics
2.2. Regulatory Governance Reforms and Sustainable Finance Under Vision 2030
3. Event-Study Methodology and Empirical Framework for the Saudi Market
3.1. Definition of ESG Controversy Events and Window Specifications
3.2. Market Model Estimation and Abnormal Return Metrics
4. Empirical Analysis of Cumulative Abnormal Returns and Market Reactions
4.1. Short-Term Share Price Adjustments to Negative ESG Announcements
4.2. Cross-Sectional Determinants of Post-Controversy Price Recovery
5. Synthesis, Strategic Implications, and Policy Recommendations
5.1. Enhancing Corporate Governance and Sustainability Oversight
5.2. Practical Guidance for Institutional Investors and Regulators
Conclusion
Bibliography

Introduction

Capital market dynamics in emerging economies are increasingly governed by environmental, social, and governance transparency, compelling publicly listed corporations to align with global disclosure benchmarks. In the Saudi capital market, the structural shift stimulated by Vision 2030 and corporate governance updates has repositioned sustainable practices as central determinants of financial valuation and investor confidence [2]. When public corporations encounter adverse sustainability disclosures, market mechanisms reassess enterprise risk and pricing trajectories under varying degrees of information asymmetry [1].

Existing scholarship offers divergent perspectives regarding whether adverse non-financial events generate severe wealth destruction or initiate corporate governance overhauls. While conventional agency formulations indicate that negative sustainability events exacerbate information opacity and risk accumulation [3], emerging empirical inquiries in transitioning jurisdictions suggest that regulatory oversight and heightened public scrutiny can foster strategic adaptation and long-term organizational renewal [1]. The precise short-term price discovery process on the Saudi Stock Exchange (Tadawul) following non-financial controversies requires rigorous quantitative appraisal via standard event-study frameworks [6].

This investigation examines the magnitude and duration of abnormal share price movements surrounding adverse sustainability events across Tadawul-listed issuers. Utilizing an event-study framework grounded in market efficiency and stakeholder theories [1], [6], the inquiry models short-horizon cumulative abnormal returns to assess whether local equities exhibit immediate pricing penalties or post-announcement price stability. By mapping how market participants interpret adverse non-financial shocks in an expanding Middle Eastern capital hub, this work establishes empirical clarity for asset managers, listed issuers, and regulatory bodies overseeing systemic market integrity [2].

Synthesis, Research Gaps, and Empirical Limitations

Scholarly perspectives on corporate sustainability in emerging capital markets diverge regarding the financial consequences of adverse non-financial events. Grounded in stakeholder and legitimacy theories, empirical evidence indicates that environmental, social, and governance controversies do not merely operate as reputational liabilities for Saudi listed entities; instead, external scrutiny prompts corrective interventions that elevate corporate sustainability performance over time ("ESG controversies and corporate accountability in Saudi Arabia", 2025). This reputational repair dynamic corresponds with broader findings demonstrating that robust sustainability disclosure reinforces corporate financial stability across Saudi firms, particularly when supported by national corporate governance reforms, whereas greenwashing practices and discretionary accruals impair firm resilience ("STRATEGIC APPROACHES TO FINANCIAL SUSTAINABILITY IN SAUDI ARABIA: INTEGRATING ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) PRINCIPLES", 2025). Despite these conceptual advances, a critical research gap persists concerning the direct market valuation effects of negative sustainability announcements through high-frequency event-study frameworks. Existing empirical investigations in the region rely primarily on annual panel regressions, leaving the immediate price discovery process and cumulative abnormal returns around discrete controversy dates unexamined. Consequently, the exact transmission channels connecting adverse disclosures to short-term equity repricing on the Saudi Stock Exchange remain insufficiently established. Furthermore, significant methodological limitations constrain current literature, including potential selection bias, unobserved firm heterogeneity, and the challenge of isolating ESG shocks from confounding macroeconomic announcements. Addressing these constraints requires event-study models that jointly examine immediate market reactions and subsequent governance adjustments.

References

  1. ESG controversies and corporate accountability in Saudi Arabia
    Ariz Naqvi, Suzan Dsouza, Mujtaba Momin et al.
    رابط DOI
  2. STRATEGIC APPROACHES TO FINANCIAL SUSTAINABILITY IN SAUDI ARABIA: INTEGRATING ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) PRINCIPLES
    Nouf Awadallah Alsulamy
    رابط DOI
  3. ESG Controversies and Stock Price Crash Risk: The Governance Shield
    Muhammad Umar Shahbaz
    رابط DOI
  4. Impact of Environmental, Social and Governance Practices Disclosure in Promoting Sustainability and Financial Performance: Evidence from Saudi Stock Exchange-Listed Companies
    Hebah Shalhoob
  5. Tadawul, the Saudi Arabian Stock Market & Nasdaq Dubai
    Khalid I. Natto
  6. The Impact of Capital Reduction on Share Prices: An Event Study of Companies Listed on the Saudi Stock Exchange (Tadawul)
    Najla Fath Al-Rahman Al-Qadi
  7. Do ESG companies in Saudi Arabia outperform market risk factors Empirical Evidence from the Tadawul Exchange
    Abdulrahman Alrajhi
  8. How environmental, social and governance (ESG) investing controversies can impact fossil fuels
    Sibo Chen

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