Do ESG Disclosures Influence Foreign Investors’ Participation and Ownership? A Comparison between Developing and Developed Markets

Posted: 30 Mar 2023 Last revised: 21 Jun 2023

See all articles by Huseyin Temiz

Huseyin Temiz

University of Liverpool; Samsun University

Periklis Boumparis

Newcastle University Business School

Chris Florackis

University of Liverpool (UK)

Date Written: March 18, 2023

Abstract

This study examines the impact of environmental, social, and governance (ESG) disclosure on the level of firms’ foreign ownership, and whether and how this effect differs between developed and developing countries. The results from a large sample of firms from 43 countries support the view that firms can attract foreign equity capital by increasing their ESG disclosures. Consistent with bonding theory and institutional theory, the positive effect of ESG disclosure on foreign ownership is more pronounced in developing countries. Further analysis shows that it is primarily driven by the environmental pillar of ESG disclosure, which demonstrates that firms’ environmental information matters to foreign investors. The findings are robust to several sensitivity tests, including methods to address the potential endogeneity problem between firms’ disclosure levels and foreign ownership. Given the significance of foreign investment to developing countries, this study has implications for regulators involved in ESG disclosure rulemaking, as well as for companies seeking to attract the attention of foreign investors and increase cross-border equity capital.

Keywords: ESG disclosure, foreign ownership, bonding theory, institutional theory, developing markets

JEL Classification: M41

Suggested Citation

Temiz, Huseyin and Boumparis, Periklis and Florackis, Chris, Do ESG Disclosures Influence Foreign Investors’ Participation and Ownership? A Comparison between Developing and Developed Markets (March 18, 2023). Available at SSRN: https://ssrn.com/abstract=4392694 or http://dx.doi.org/10.2139/ssrn.4392694

Huseyin Temiz

University of Liverpool ( email )

Chatham Street
Brownlow Hill
Liverpool, L69 7ZA
United Kingdom

Samsun University ( email )

Turkey

Periklis Boumparis

Newcastle University Business School ( email )

5 Barrack Rd
Newcastle upon Tyne, NE1 4SE
United Kingdom

Chris Florackis (Contact Author)

University of Liverpool (UK) ( email )

The Management School
University of Liverpool
Liverpool, L 697ZH
United Kingdom

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