The Effects of Mandatory ESG Disclosure on Price Discovery Efficiency Around the World

60 Pages Posted: 28 Dec 2022 Last revised: 12 Jul 2023

See all articles by Qiyu Zhang

Qiyu Zhang

University of Sussex Business School

Rong Ding

NEOMA Business School

Ding Chen

University of Sussex Business School

XiaoXiang Zhang

University of Sussex - School of Business, Management and Economics

Date Written: July 12, 2023

Abstract

We examine the effect of mandatory environmental, social and governance (ESG) disclosure on firms’ price discovery efficiency around the world. Using data from 45 countries between 2000 and 2020 and a difference-in-differences method, we find that mandatory ESG disclosure increases firm-level stock price non-synchronicity and timeliness of price discovery, suggesting more firm-specific information is incorporated into stock prices in a more timely manner. Mandatory ESG disclosure improves price discovery efficiency more in countries with strong demands for ESG information and in firms with poor disclosure incentives. Mandatory ESG disclosure also leads to other real market changes, such as lower stock returns, greater changes in institutional ownership and higher firm valuation.

Keywords: Mandatory ESG disclosure; Price efficiency; Governance

JEL Classification: G14, G15, G18, G28, G30

Suggested Citation

Zhang, Qiyu and Ding, Rong and Chen, Ding and Zhang, XiaoXiang, The Effects of Mandatory ESG Disclosure on Price Discovery Efficiency Around the World (July 12, 2023). International Review of Financial Analysis, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4308420 or http://dx.doi.org/10.2139/ssrn.4308420

Qiyu Zhang (Contact Author)

University of Sussex Business School ( email )

Jubilee Building
Falmer
Brighton, BN1 9SN
United Kingdom

Rong Ding

NEOMA Business School ( email )

1 RUE DU MARECHAL JUIN-BP215
MONT-SAINT-AIGNAN CEDEX, 76825
France

Ding Chen

University of Sussex Business School ( email )

214 Jubilee Building
University of Sussex
Brighton, Brighton BN1 9SL
United Kingdom

XiaoXiang Zhang

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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