Transparency and the Visibility of Misconduct: Evidence from ESG Disclosure Mandates

Erdinc Akyildirim, Giray Gözgör, Thang Ho and Alexander F. Wagner
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Erdinc Akyildirim: University of Nottingham
Thang Ho: University of Bradford
Alexander F. Wagner: University of Zurich - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

No 26-21, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Mandatory disclosure is commonly intended to deter corporate misconduct by increasing transparency. We examine an alternative channel: disclosure may primarily change the likelihood that misconduct becomes detectable. Exploiting staggered introductions of ESG disclosure mandates across 53 countries, we study how regulation affects the observed incidence of misleading ESG communications identified by external monitors. Following mandate adoption, the number of detected incidents increases significantly. The rise is concentrated in areas with stronger scrutiny, among larger and more visible firms, in countries with higher institutional quality, and where media and civil society oversight are more effective. Moreover, capital markets react more negatively to incidents after disclosure becomes mandatory, particularly when claims are more verifiable. Together, the evidence indicates that disclosure reforms enhance the observability and credibility of ESG information, enabling outsiders to uncover misrepresentation rather than preventing it. Our findings highlight that transparency regulation can raise reported misconduct even as it improves accountability.

Keywords: Mandatory ESG disclosure; Greenwashing; Detection; Corporate misconduct; Information environment; Regulatory enforcement; Stock price reactions; Difference-indifferences (search for similar items in EconPapers)
Pages: 67 pages
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2621

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