ESG disclosure and financial performance: Moderating role of ESG investors

Abstract

This study discusses the effect of environmental, social, and governance (ESG) disclosure on corporate financial performance. This study uses a sample of non-financial listed companies from 2000 to 2020 and applies the staggered difference-in-differences technique to eliminate the endogeneity problem. Findings show that ESG disclosure has a favorable effect on corporate financial performance. This conclusion remains robust after a series of robustness tests, including the parallel trend test, Goodman-Bacon decomposition, replacement of dependent variables, system GMM estimate, the placebo test, etc. ESG disclosure has heterogeneous effects on financial performance. The positive effect of ESG disclosure on corporate financial performance is more pronounced in companies with ESG investors and companies with longer inception, high media attention, and high agency costs. In addition, investors with ESG preferences exert a substantial moderating effect on the link between ESG disclosure and financial performance connection. We arrive at two conclusions in the extended analysis. One is that ESG disclosure attracts ESG investors. Another is that ESG investors also play a positive moderating role in the connection between ESG ratings and financial performance.