ESG Disclosure and Firm Performance: An Asset-Pricing Approach
Disclosing information on environmental, social, and governance (ESG) parameters is voluntary for most firms across the world. Companies disclose their performance on ESG datapoints due to two main reasons—(i) to gain the trust of stakeholders through increased transparency and (ii) to comply with r...
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| Format: | Article |
| Language: | English |
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MDPI AG
2023-06-01
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| Series: | Risks |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2227-9091/11/6/112 |
| _version_ | 1797592786934956032 |
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| author | Vinay Khandelwal Prashant Sharma Varun Chotia |
| author_facet | Vinay Khandelwal Prashant Sharma Varun Chotia |
| author_sort | Vinay Khandelwal |
| collection | DOAJ |
| description | Disclosing information on environmental, social, and governance (ESG) parameters is voluntary for most firms across the world. Companies disclose their performance on ESG datapoints due to two main reasons—(i) to gain the trust of stakeholders through increased transparency and (ii) to comply with regulations imposed by governments and investment houses. Using a dataset of companies disclosing ESG parameters during 2014–2021 from the S&P BSE 500 index, this study investigates the role of ESG disclosure on firm performance. We divide the constituent securities into three factors—size, value, and disclosure to study the premiums generated by firms on each factor using single-, double-, and triple-sorting approaches. We utilize time series regressions along with GRS tests to empirically test the presence of factor premiums. We find the significant role of factors size, value, disclosure, and a dummy variable for the COVID-19 pandemic period to explain the portfolio returns. The study found a negative ESG disclosure premium stating that firms with high levels of disclosure earn less returns compared with the firms with less disclosures. The findings of this study contrast with multiple studies in the past that have found a positive disclosure premium. Our findings help reconcile the mixed evidence on the disclosure–returns relationship. |
| first_indexed | 2024-03-11T01:58:10Z |
| format | Article |
| id | doaj.art-9650e59847d44a9084f693536fd4cfbc |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-03-11T01:58:10Z |
| publishDate | 2023-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-9650e59847d44a9084f693536fd4cfbc2023-11-18T12:28:38ZengMDPI AGRisks2227-90912023-06-0111611210.3390/risks11060112ESG Disclosure and Firm Performance: An Asset-Pricing ApproachVinay Khandelwal0Prashant Sharma1Varun Chotia2Jaipuria Institute of Management Jaipur, Jaipur 302033, IndiaJaipuria Institute of Management Noida, Noida 201309, IndiaJaipuria Institute of Management Jaipur, Jaipur 302033, IndiaDisclosing information on environmental, social, and governance (ESG) parameters is voluntary for most firms across the world. Companies disclose their performance on ESG datapoints due to two main reasons—(i) to gain the trust of stakeholders through increased transparency and (ii) to comply with regulations imposed by governments and investment houses. Using a dataset of companies disclosing ESG parameters during 2014–2021 from the S&P BSE 500 index, this study investigates the role of ESG disclosure on firm performance. We divide the constituent securities into three factors—size, value, and disclosure to study the premiums generated by firms on each factor using single-, double-, and triple-sorting approaches. We utilize time series regressions along with GRS tests to empirically test the presence of factor premiums. We find the significant role of factors size, value, disclosure, and a dummy variable for the COVID-19 pandemic period to explain the portfolio returns. The study found a negative ESG disclosure premium stating that firms with high levels of disclosure earn less returns compared with the firms with less disclosures. The findings of this study contrast with multiple studies in the past that have found a positive disclosure premium. Our findings help reconcile the mixed evidence on the disclosure–returns relationship.https://www.mdpi.com/2227-9091/11/6/112ESG disclosurefirm performanceasset pricingsustainabilityESGfinancial anomaly |
| spellingShingle | Vinay Khandelwal Prashant Sharma Varun Chotia ESG Disclosure and Firm Performance: An Asset-Pricing Approach Risks ESG disclosure firm performance asset pricing sustainability ESG financial anomaly |
| title | ESG Disclosure and Firm Performance: An Asset-Pricing Approach |
| title_full | ESG Disclosure and Firm Performance: An Asset-Pricing Approach |
| title_fullStr | ESG Disclosure and Firm Performance: An Asset-Pricing Approach |
| title_full_unstemmed | ESG Disclosure and Firm Performance: An Asset-Pricing Approach |
| title_short | ESG Disclosure and Firm Performance: An Asset-Pricing Approach |
| title_sort | esg disclosure and firm performance an asset pricing approach |
| topic | ESG disclosure firm performance asset pricing sustainability ESG financial anomaly |
| url | https://www.mdpi.com/2227-9091/11/6/112 |
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