The Opaque Scorecard: Environmental, Social and Financial Information during a Crisis

43 Pages Posted: 1 May 2023 Last revised: 29 Feb 2024

See all articles by Mircea Epure

Mircea Epure

Universitat Pompeu Fabra (UPF) - Department of Economics and Business; Barcelona School of Economics; UPF Barcelona School of Management

Serhat Hasancebi

Universitat Pompeu Fabra (UPF) - Department of Economics and Business; University of the Basque Country - Faculty of Economic Science and Business Studies

Date Written: April 19, 2023

Abstract

We show that firms with higher environmental and social (ES) capital display lower financial reporting quality (FRQ) during the Covid-19 crisis. We conjecture that this substitution, which did not exist pre-Covid-19, is driven by firm reliance on the signaling value of ES information to stakeholders, and the muted signaling value of FRQ during the pandemic uncertainty. The result is robust to using ES scores or (social) media sentiment, and it holds estimating standard and synthetic difference-in-differences. Consistent with our predictions, the ES - FRQ substitution is stronger in countries with more government intervention through income support and debt relief, especially if those countries are richer or have weaker legal rights. At the firm level, the result is stronger for firms with worse governance or management practices, when the CEO pay is not linked to shareholder returns or that of senior executives to sustainability objectives, and with lower strategic or institutional ownership. Last, we uncover that higher ES firms display higher variability in depreciation and amortization expenses, intangible assets, R&D expenses, inventories, and labor costs during Covid-19.

Keywords: environmental, social, governance, ESG, financial reporting quality, Covid-19, crisis

JEL Classification: M14, M41, M42, M49

Suggested Citation

Epure, Mircea and Hasancebi, Serhat, The Opaque Scorecard: Environmental, Social and Financial Information during a Crisis (April 19, 2023). Available at SSRN: https://ssrn.com/abstract=4423702 or http://dx.doi.org/10.2139/ssrn.4423702

Mircea Epure (Contact Author)

Universitat Pompeu Fabra (UPF) - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://mirceaepure.com

Barcelona School of Economics ( email )

Carrer de Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

UPF Barcelona School of Management ( email )

Carrer de Balmes, 132, 134
Barcelona, 08008
Spain

Serhat Hasancebi

Universitat Pompeu Fabra (UPF) - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://https://www.serhathasancebi.com/

University of the Basque Country - Faculty of Economic Science and Business Studies ( email )

Bilbao, 48015
Spain

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