Statutory ESG reporting and investment efficiency: evidence using quasi-natural experiment

Rajesh Desai

International Journal of Law and Management, 2025, vol. 68, issue 3, 573-597

Abstract: PurposeThis paper aims to examine the effect of compulsory environmental, social and governance (ESG) disclosure regulation on corporate investment efficiency (IE). The study also explains how carbon sensitivity moderates the ESG-IE nexus.Design/methodology/approachThe present study is based on the well-developed difference-in-differences (DID) research design with firms required to file ESG reports as the treatment group and others as a control group. Companies listed on the National Stock Exchange have been considered as the source of the sample and the final dataset of 1,077 firms (9,149 firm-year observations from 2011 to 2020) has been selected using a multi-stage sampling approach. The study also performs several robustness tests to validate the reliability of the results.FindingsBased on empirical results, the study concludes that the implementation of compulsory ESG reporting improves the investment efficiency of treated firms in the post-enforcement period. Further, the study also confirms that firms in the carbon-sensitive industry have experienced a high level of improvement in investment efficiency.Research limitations/implicationsAs the study supports the value relevance of mandatory ESG disclosure, managers can utilize the same to communicate superior firm performance and reduce information asymmetry. Further, this study empirically validates the outcome of a regulatory policy which in turn assists policymakers in smooth implementation.Originality/valueThe extant literature has primarily analysed voluntary ESG reporting framework and that too in the setting of developed nations. However, as against developed economies, emerging countries have scanty regulations for ESG reporting and that too perforated with gaps. Such a constrained legal environment amplifies the information asymmetry among investors and managers leading to investment inefficiency. Thus, the current research deepens the extant literature by studying mandatory ESG reporting within an emerging economy to better understand the ESG-IE nexus.

Keywords: ESG; Sustainability; Investment efficiency; Statutory; Difference-in-difference (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijlmap:ijlma-09-2024-0334

DOI: 10.1108/IJLMA-09-2024-0334

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