Deciphering Market Reactions: A Thorough Investigation of the Impact of Sustainability Policy Announcements on Share Prices in Indian Equity Markets

ABSTRACT

The idea of sustainability has evolved from a side issue to a cornerstone of international economic growth in recent years. However, the impact of sustainability initiatives on investor reaction remains ambiguous, especially in developing nations. This study examines how market reactions to sustainability policy announcements in Indian firms have evolved, considering the impact of policy specifics. Utilizing event study analysis with publicly available share price data and policy announcements, our results indicate that policy type drives investor reactions. Notably, firms with high ESG scores experienced more pronounced positive abnormal returns compared to their lower‐scoring counterparts, suggesting that investors reward stronger sustainability credentials. This research aims to elucidate shifts in investor reactions over time, offering insights from a developing nation's perspective. This research challenges the uniform positive market reaction to sustainability announcements, revealing nuanced, context‐dependent behavior shaped by policy type, temporal factors, and firm ESG performance. These insights from a developing market perspective inform policymakers and companies on effective and sustainable investment strategies.