Stock Market Reaction to Mandatory ESG Disclosure

18 Pages Posted: 7 Jul 2022

See all articles by Jiazhen Wang

Jiazhen Wang

Zhengzhou University

Xiaolu Hu

RMIT University - School of Economics, Finance and Marketing

Angel Zhong

RMIT University - School of Economics, Finance and Marketing

Abstract

Employing an event-study approach, we examine stock markets’ reaction to the enactment of the ESG (Environmental, Social and Governance) Disclosure Simplification Act of 2021 by the United States House of Representatives. The Act mandates disclosure of standardized ESG metrics among American public companies. A significantly negative reaction of -1.1% is documented across all firms, which does not recover until the fifth day. Carbon-intensive firms and industries are more vulnerable to the negative market reaction. We also find that investors incorporate ESG performance in making decision, as the negative reaction attenuates among firms with higher ESG scores.

Keywords: event study, ESG disclosure, nonfinancial disclosure, climate-related financial risks, mandatory disclosure

Suggested Citation

Wang, Jiazhen and Hu, Xiaolu and Zhong, Angel, Stock Market Reaction to Mandatory ESG Disclosure. Available at SSRN: https://ssrn.com/abstract=4156258

Jiazhen Wang

Zhengzhou University ( email )

100 Science Avenue
Zhengzhou, CO 450001
China

Xiaolu Hu (Contact Author)

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Angel Zhong

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

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