Do environmental, social, and governance disclosure assurance reduce the cost of equity capital? Evidence from Chinese listed financial institutions

Hao Huang, Li Tang and Ling Zhao

International Review of Finance, 2025, vol. 25, issue 1

Abstract: This study examines the benefits of environmental, social, and governance (ESG) disclosure assurance (EDA) in reducing a firm's cost of equity capital. Using data on Chinese listed financial institutions from 2006 to 2022, we find a significant and negative relationship between EDA and the cost of equity capital. When an EDA is provided by an accounting firm, as well as when the auditor is a shared resource for the annual report, the cost of equity decreases significantly. Further analysis shows that the effect of EDA on the cost of equity is more pronounced for institutions with lower information transparency and higher operational risk. Additionally, the impact of EDA is amplified when these institutions choose to disclose their ESG information separately rather than integrating it within their financial reporting, when disclosures align with the Global Reporting Initiative standards, and when the content of the disclosures is more comprehensive and detailed.

Date: 2025
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International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

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