Market manipulation is deliberate actions that affect trading activity and corporate policies. We conjecture that market manipulation has unintended consequences also for the ESG policies of the firm. Based on an international sample of monthly data from 2007 to 2018, the data indicate that the presence of market manipulation in stock increases the probability of ESG incidents by the firm in the ensuing year. We present evidence that this effect is driven by the three channels: financial frictions, business risk, and employment changes. The findings are robust to numerous checks and different fixed effects structures. We also mitigate the endogeneity concerns by using quasi-natural experiments that improve transparency in difference-in-difference research design.

Other authors: Shan Ji, Zhejiang Gongshang University Hangzhou College of Commerce; Monika Tarsalewska, University of Exeter Business Schhol, Exeter, UK.