The Effects of Mandatory ESG Disclosure Around the World
European Corporate Governance Institute – Finance Working Paper No. 754/2021
75 Pages Posted: 26 Apr 2021 Last revised: 13 Feb 2023
Date Written: January 27, 2023
We compile a novel dataset on mandatory environmental, social, and governance (ESG) disclosure around the world to analyze the stock liquidity effects of such disclosure mandates. We document a significant positive effect of ESG disclosure mandates on firm-level stock liquidity. The effects are strongest if the disclosure requirements are implemented by government institutions—not on a comply-or-explain basis—and coupled with strong enforcement by informal institutions. Firms with weaker information environments benefit the most from ESG disclosure mandates. The findings are robust to different estimation methods and concerns related to the staggered introduction of the disclosure mandates. Our results support the view that ESG disclosure regulation improves the information environment and has beneficial capital market effects.
Keywords: Sustainability reports, ESG reporting, Nonfinancial information, ESG incidents
JEL Classification: G14, G15, G18, G32, G38
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