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

53 Pages Posted: 28 Dec 2022

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: December 21, 2022

Abstract

We examine the effect of mandatory environmental, social and governance (ESG) disclosure on firms’ price discovery efficiency around the world. Using data from 40 countries between 2000 and 2019 and a difference-in-difference method, we find that ESG mandatory disclosure increases firm-level stock price nonsynchronicity and timeliness of price discovery suggesting more firm-specific information is incorporated into stock price in a more timely manner. ESG mandatory disclosure improves price discovery efficiency more in countries with strong demands on ESG information and in firms with poor disclosure incentives. It also decreases the cost of equity capital, increases institutional ownership and 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 (December 21, 2022). 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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