Topics That Matter: ESG Reports and Information Asymmetry

James Thewissen, Prabal Shrestha, Özgür Arslan-Ayaydin and Yan Beibei
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James Thewissen: Université catholique de Louvain, LIDAM/LFIN, Belgium
Prabal Shrestha: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2026004, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: This study examines how the thematic content of Environmental, Social, and Governance (ESG) reports relates to information asymmetry in capital markets. Analyzing 7,565 ESG reports from 1,715 U.S. firms between 1998 and 2023 using sentence-level topic modeling (sentLDA), we identify 30 distinct disclosure topics. Using the dispersion in analysts’ forecasts as a proxy for information asymmetry, the results indicate that environmental themes are associated with lower levels of analyst disagreement, social topics with higher disagreement, while governance-related themes show limited association. These findings highlight that the informativeness of ESG reports depends not only on whether firms choose to disclose ESG information, but also on what they choose to disclose. In addition, we find that first-time reports are more informative than subsequent ones and that topic diversity exhibits a concave relationship with informativeness, suggesting diminishing returns from a broader thematic coverage. Finally, we find that ESG reports’ informativeness is greater when analyst coverage is greater, institutional ownership is lower, ESG performance is higher, and third-party ESG ratings show greater convergence.

Keywords: ESG reports; Topic modeling; Information asymmetry (search for similar items in EconPapers)
Pages: 54
Date: 2026-03-24
Note: In: Journal of Financial Research, 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2026004

DOI: 10.1111/jfir.70053

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