The moderating role of audit quality in ESG disclosure and cost of debt nexus: Asian evidence

Prior studies on the relationship between ESG information and cost of debt have found mixed results. They conclude that this relationship may be affected by some characteristics or attributes of the company. In this study, we examine whether corporate reputation mediates the relationship between ESG information and cost of debt. In other words, this study explores how ESG information influences corporate reputation, and how, in turn, corporate reputation affects the cost of debt financing. Data for corporate reputation were obtained from the Fortune “World’s Most Admired Companies” List, whereas data on ESG information were extracted from two sources: ESG performance were obtained from Sustainalytics database and ESG disclosure were obtained from Bloomberg database. Data on cost of debt and other control variables were also collected from Bloomberg database. Using structural equation models, we report a positive effect of both ESG performance and disclosure on corporate reputation. We also find that a good corporate reputation reduces the cost of debt financing and mediates the relationship between ESG performance/disclosure and cost of debt. We therefore conclude that firms that manage and disclose information on ESG issues have a better reputation, which in turn reduces their debt financing costs.

Orientation: Ignoring environmental, social and corporate governance (ESG) aspects exposes firms to risks that diminish value, shrink returns and even lead to failure. Firms considering ESG aspects are perceived as less risky by capital providers. Such capital suppliers accept lower returns and lending rates when providing capital to firms with superior ESG practices and disclosure. Research purpose: To investigate the link between ESG disclosure and the cost of capital. Motivation for the study: Although there has been a growing interest in responsible corporate practices in emerging markets, limited research on ESG has been conducted in South Africa. Research approach/design and method: A positivistic paradigm was employed. A sample of 68 firms from six Johannesburg Stock Exchange sectors over the period 2011–2018 (478 firm-year observations) was examined using panel regression analyses. Main findings: A significant negative relationship was observed between composite ESG disclosure scores and weighted average cost of capital (WACC) for both consumer goods and consumer services sectors. In addition, a significant positive regression coefficient was obtained between composite ESG disclosure scores and WACC for firms from the industrials sector. Practical/managerial implications: A growing number of capital providers consider a firm’s ESG practices and disclosures which could offer a firm the opportunity to raise additional sources of capital. Contribution/value-add: Local firms that had improved ESG disclosure seemed to benefit from a lower overall WACC and cost of debt. Equity capital providers, however, seem to perceive increased ESG disclosure as additional risk and require a higher return from such firms in South Africa.

As a crucial financial metric, the cost of debt measures the economic burden that a firm bears when using loans to fund its operations. Using a regression model, this study examines how real earnings management, ESG disclosure, political connections, and several control variables affect the cost of debt within the context of non-financial firms listed on the Indonesia Stock Exchange during the observation period from 2018 to 2021. The results reveal that real earnings management has a significant positive connection with the cost of debt, while ESG Disclosure does not have a significant negative relationship with the cost of debt. As a moderating variable, political connections have been shown to strengthen the positive relationship between real earnings management and the cost of debt. Similarly, political connections also strengthen the negative relationship between ESG Disclosure and the cost of debt. This study highlights the importance of using ethical and transparent financial practices and robust ESG disclosure in managing debt costs. The findings provide insight into the potential benefits of aligning financial and sustainability practices, which may result in improved financial performance, enhanced investor confidence, and reduced business financing costs.

The study aimed to investigate the impact of Environmental, Social, and Governance (ESG) Performance as independent variables on stock returns, volatility, market capitalization, and trading volumes as dependent variables. The study also aimed to explore the role of ESG disclosure and regulatory efforts, especially within the framework of the Saudi Exchange's ESG guidelines, in shaping investment behaviour. A mixed approach was employed to address the study questions and test hypotheses. The quantitative aspect involved analyzing historical ESG scores and financial data from 20 companies listed on the Saudi Stock Exchange over 5 years from 2018 to 2023. The study employed a panel data methodology that comprises both cross-sectional and time-series fixed effects regression models to quantify the relationships. In-depth interviews with market participants, including institutional investors, were conducted to complement the quantitative data and provide insights into the decision-making process related to ESG factors. The study found a significant and positive relationship between ESG performance and stock returns, with stronger environmental performance correlating with higher returns. Additionally, robust governance performance was linked to higher market capitalization, while better social performance was associated with lower stock volatility. Increased ESG disclosure, particularly due to regulatory efforts, was found to have a positive influence on trading volume. These findings suggest that Saudi institutional investors are increasingly considering ESG factors when making investment decisions, driven by regulatory alignment and a perceived reduction in risk. The study discussed the theories that explain the impact of ESG on performance, which were institutional theory, legitimacy theory, signalling theory, and political economy theory. The study provided novel insights into the relationship between ESG factors and the Saudi capital market. This emerging market has been underexplored in the context of environmental, social, and governance (ESG) integration. It also provides a comprehensive understanding of how local regulatory efforts and institutional drivers shape ESG-related investment decisions in the Saudi market, offering both academic and practical contributions to the field.

Research aim: This study examines the relationship between audit committee (AC) dynamics, such as size, gender diversity, and independence, auditor quality, and ESG disclosure practices. Design/ Methodology/ Approach: Using a weighted least squared regression method, this study analyses 315 firm-year observations from 63 Malaysian public-listed companies between 2018 and 2022. Research finding: The results indicate that AC independence and gender diversity significantly enhance ESG, social, and governance disclosures, while AC size negatively impacts social and governance disclosures. Auditor quality showed limited influence, with a negative effect on governance disclosure. Theoretical contribution/Originality: This study contributes to agency and stakeholder theories by emphasising AC attributes’ roles in mitigating information asymmetry and addressing stakeholder interests. It challenges existing assumptions about auditor quality, suggesting the need for ESG-specific audit frameworks, particularly in emerging markets. Practitioner/Policy implication: For policymakers, the findings highlight the need to strengthen governance frameworks by promoting AC independence and diversity. Practitioners, especially audit firms, should integrate ESG expertise to support companies effectively. Regulators may consider revising corporate governance codes to encourage balanced ESG disclosures across all dimensions. Research limitation: The study focuses solely on 63 Malaysian public-listed companies, using data between 2018 and 2022.

While ESG initiation and disclosure may help newly listed companies maintain a social license to operate, mitigate information asymmetry, and attract investor attention, it may impose significant costs on initial public offering (IPO) firms and magnify agency problems. Using a sample of 1102 IPOs issued in the U.S and the ESG data from MSCI between 1999 and 2016, the paper empirically tests the competing hypotheses and examines the influence of ESG disclosure and performance on the survivability of IPOs. We document that (1) voluntary ESG disclosure reduces IPO failure risks and improves long‐run performance of IPO; (2) the sooner ESG information is disclosed after the IPO, the greater the likelihood of survival and better long‐run performance; and (3) IPOs with better ESG score are less likely to fail, with the impact largely attributable to the company's social and governance performance. Our findings identify new failure risks for IPOs, supply evidence of value‐relevance of ESG, and provide practical guidance for managers.

ABSTRACTThis study examines the direct relationship between corporate governance (including board gender diversity, board independence, insider ownership, institutional ownership, and foreign ownership), ESG disclosure, and the cost of debt. Drawing on stakeholder, agency, and signaling theories, the study extends its analysis to examine the mediating effect of ESG disclosure in the relationship between corporate governance and the cost of debt. Using a sample from nine sectors of the Chinese economy, the results show that most board characteristics are negatively related to the cost of debt, except for insider ownership, which shows a significant positive relationship. In addition, ESG disclosure is found to significantly reduce the cost of debt and serves as a mediator between corporate governance and the cost of debt. This study makes a unique contribution by highlighting the mediating role of ESG disclosure in the relationship between corporate governance and the cost of debt.

With increasing global attention on sustainable development and corporate social responsibility, more and more countries and regions are requiring companies to disclose information related to environmental, social, and corporate governance (ESG). Especially in the oil and gas industry, ESG information disclosure has become an important means of measuring corporate governance and sustainable development performance. However, there is still controversy in both academic and practical circles regarding whether ESG disclosure can improve financial performance and its impact on companies fulfilling their fiduciary responsibilities. Therefore, this study aims to explore the impact of ESG disclosure on the financial performance of companies in the oil and gas industry, and analyze its relationship with the fulfillment of trust responsibilities.This study adopts the Difference in Differences (DID) method and selects oil and gas companies affected by ESG disclosure policies as research objects. By comparing the changes in financial performance of these companies before and after policy implementation, the role of ESG information disclosure in improving company transparency and reducing information asymmetry is analyzed. In addition, this study also explored the interactive relationship between ESG disclosure and trust responsibility under different legal frameworks, especially in the application of high environmental risk industries. The research results indicate that active ESG disclosure not only helps improve the long-term financial stability of companies, but also enhances shareholder trust and reduces legal risks, especially in regions with sound policies where the effect is more significant. However, research has also found that ESG disclosure may increase short-term costs and conflict with short-term financial goals in trust obligations.

Current challenging environments pressure firms to improve their overall ESG performance. However, there is tension between the benefits of ESG disclosure and firm performance. We deepen the understanding of ESG disclosure’s contribution to firms’ cost of debt in an emerging economy context. This issue is critical in Latin America–a region with reduced financing, ample company heterogeneity, and scarce evidence associating ESG disclosure and firms’ debt financing. Using fixed effects models, for the 2015–2020 period, we study Chilean listed firms. We explore two association channels between ESG disclosure and the cost of debt financing. Through a direct channel, greater disclosure relates to a lower cost; however, through an indirect channel, disclosure interacts with growth opportunities–a proxy for firms’ prospective risk–and greater disclosure relates to a higher cost. Hence, evidence suggests that ESG disclosure affects the cost of financing in two opposite directions. Our results delve into how ESG disclosure encloses essential economic implications, particularly in countries that have recently adopted ESG practices: For regulators, on developing rules of ESG disclosure that consider their financial effects; for firms, on enhancing their ESG communications policies; and finally, for creditors, on the need to introduce ESG indicators in their financing decision-making.

This research aims to empirically test the influence of Enterprise Risk Management (ERM), External Audit Quality, and ESG Disclosure on company value with company size and leverage as control variables. This type of research is quantitative causality research using secondary data. The population of this research is mining sector companies listed on the Indonesia Stock Exchange (IDX) during 2020-2022. The sample taken for this research was 136 which was obtained from the purposive sampling method. The analytical method used is multiple linear regression analysis. The results of this research show that Enterprise Risk Management (ERM) and ESG Disclosure have a positive effect on company value, while External Audit Quality has no effect on company value. The implication of the results of this research is that disclosure of ERM by the company to investors increases the trust of investors and potential investors in the company. Then ESG Disclosure also has a very important role for companies because by highlighting their environmental, social and governance performance, companies can have a better image in the eyes of society in general.
 
 Keywords: Company Value, Enterprise Risk Management (ERM), External Audit Quality, ESG Disclosure

Purpose In recent years, companies have increasingly adopted visual tools to communicate their sustainability practices, responding to growing stakeholder demand for more transparent and accessible non-financial information. Within this context, the use of visual content in environmental, social, and governance (ESG) disclosure has also gained prominence in academic literature. Under the lens of signaling theory, the purpose of this study is to investigate the relationship between visual ESG disclosure and the cost of debt. Design/methodology/approach This study adopts a machine-supported approach, relying on Google’s Vision API to assess the extent to which a sample of 279 listed firms included in the MSCI Europe Index incorporate photographs and images related to ESG issues in their non-financial reports for the 2023 financial year. A regression model was used to assess the relationship between the level of visual ESG disclosure, proxied by the natural logarithm of the number of ESG photographs and images retrieved from sampled non-financial reports, and the cost of debt. Findings The results of this study reveal that the majority of ESG photographs and images in corporate non-financial reports are linked to environmental themes, followed by social topics and, to a much lesser extent, governance content. In addition, the findings of this study indicate that a greater use of visual ESG disclosure is associated with a reduction in the cost of debt. Originality/value This study enriches the ESG disclosure literature by shifting attention from the content to the form of disclosure, emphasizing the strategic role of visual elements in non-financial reporting and their influence on the cost of debt. To the best of the authors’ knowledge, this is the first study to offer empirical insight into the impact of using photographs and images for ESG disclosure on borrowing costs. This study also advances the application of signaling theory by demonstrating how visual communication can serve as a credible signal of corporate transparency in capital markets.

Objective: This study investigate how the quality of IR and ESG disclosures can affect the level of information asymmetry and enhance legitimacy and signal about firm value. Theoretical Framework: IR will increase the company's transparency to stakeholders so that reduces the problem of information asymmetry and long-term business value creation. SDGs encourages organizations to pursue credentials by implementing ESG to increase corporate credibility. High profitability can provide positive signals that encourage managers to implement IR and submit ESG reports, thereby reducing information asymmetry and increasing firm value. Method: Based on data from the IDX database, this study analyses companies that are members of the LQ45 group. We have collected annual reports and sustainability reports for the period between 2013 and 2022. Results and Discussion: IR quality has a negative influence on FA and firm value, while ESG disclosure has a positive influence on FA and firm value. Profitability variable is able to strengthen the effect of IR quality and ESG disclosure on FA. Therefore, IR quality and ESG disclosures have a strong influence on FA. Research Implications: Theoretically, this study’s result strengthen the study of legitimacy and institutional theories in explaining the relationship between IR quality and sustainability disclosures on information asymmetry and firm value in the long run. Practically, it highlights the importance for managers to enhance IR and ESG disclosures, thereby promoting corporate transparency and accountability. Originality/Value: This considers profitability variables to understand the motives and drivers of managers to implement integrated reporting formats and deliver sustainability reporting.

This study examines the effect of environmental, social, and governance (ESG) performance on firms’ cost of debt (COD). Based on a sample of 18,950 firm-year observations from 41 countries over the period of 2008–2015, we find a significant negative association between aggregate ESG performance and firms’ COD. We also observe a significant negative association between the individual ESG performance factors (E, S, and G) and firms’ COD. In addition, the negative association between aggregate/individual ESG performance and firms’ COD is economically significant, ranging from 16.93% to 21.20% of median COD values. Finally, disclosure of ESG performance, stakeholder orientation, investor protection, control of corruption, and social progress have pronounced effects on the negative association between ESG performance and firms’ COD. Taken together, our results suggest that ESG performance has a significant negative effect on firms’ COD from an international perspective.

The increasing demand for transparency and accountability in sustainability practices has heightened the importance of high-quality Environmental, Social, and Governance (ESG) reporting. However, assessing the quality of ESG disclosures remains a challenge due to their predominantly qualitative nature and varying reporting practices. This study addresses this gap by developing ESG quality indices to assess the quality of ESG reporting through nine key dimensions: environmental position, environmental development, environmental performance, social position, social development, social performance, social performance, social performance, social performance, governance position, governance development, governance performance. These dimensions are then refined to 22 items. Using 15 ESG reports from listed companies at Hong Kong Stock Exchange in 2024, this study conducted pre-testing of the instrument using the Content Validity Index (CVI), inter-rater reliability (Krippendorff’s alpha), and internal consistency (Cronbach’s alpha). The results indicate that the instrument is a valid and reliable tool for assessing the quality of ESG reports. This study offers both methodological and practical contributions. Methodologically, it presents a replicable tool that enhances rigor in ESG reporting assessments. Practically, it provides stakeholders, such as regulators, investors, and standard setters with a structured approach for benchmarking ESG disclosures, ultimately supporting improved transparency, comparability, and accountability in sustainability reporting. The ESG quality index development contributes to quality assessment of ESG information disclosure, making the qualitative item operationally measurable.

The Environmental, social, and governance (ESG) disclosure is an important aspect of firms’ strategies. Therefore, exploring how to facilitate the firms’ ESG disclosure is necessary. This paper examines the role of multiple large shareholders (MLS, hereafter) in facilitating a firm’s ESG disclosure. Using a sample of Chinese listed firms during 2011–2020, we compare the ESG disclosure of firms having MLS with that of firms having a single large shareholder (SLS, hereafter) and find that having MLS associated with significantly higher ESG disclosure. After addressing endogeneity and altering the measurement of MLS, the benchmark results still hold after. Additional analysis shows that MLS exerts a more prominent positive effect on ESG disclosure in SOEs. We also examine the role of the other large shareholders in facilitating firms’ ESG disclosure. Our findings reveal a bright side of MLS: it facilitates ESG disclosure by monitoring. Therefore, this paper’s conclusion sheds new light on the bright side of MLS from the perspective of firms’ ESG disclosure and provides insights into how to improve ESG disclosure.