The Effect of ESG Disclosure on Corporate Investment Efficiency

76 Pages Posted: 10 Apr 2021 Last revised: 31 Oct 2022

See all articles by Elsa Allman

Elsa Allman

French Banking Supervisory Authority; Banque de France

Joonsung Won

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: October 31, 2022

Abstract

This paper examines the effects of environmental, social, and governance (ESG) disclosure
on investment efficiency, using the adoption of Directive 2014/95/EU as a quasi-natural
shock on disclosure quality. We document a significant and robust reduction of underinvestment
for U.S. firms exposed to the Directive. Investment efficiency gains are strongest for firms with
ex-ante lower ESG disclosure levels, that are financially constrained, and for firms with more
entrenched managers. Underinvesting firms exposed to the shock raise more debt ex-post and
the additional debt is used to reduce underinvestment. These results suggest that non-financial
disclosure can play a role in mitigating information asymmetry in debt markets.

Keywords: Disclosure, Non-financial reporting quality, Corporate investment

JEL Classification: G14, G18, K20, G34, Q56

Suggested Citation

Allman, Elsa and Won, Joonsung, The Effect of ESG Disclosure on Corporate Investment Efficiency (October 31, 2022). Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3816592 or http://dx.doi.org/10.2139/ssrn.3816592

Elsa Allman (Contact Author)

French Banking Supervisory Authority ( email )

Paris
France

Banque de France ( email )

Paris
France

Joonsung Won

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,609
Abstract Views
4,223
Rank
20,634
PlumX Metrics