The Impact of ESG-Related Financial Disclosure Laws on Corporate Financial Performance

Abstract

This research examined the effects of regulations pertaining to environmental, social, and governance (ESG) financial disclosure on the financial performance of companies over the course of five years using data from 300 publicly traded companies across a range of industries. The study compared the financial performance of businesses both before and after mandatory ESG disclosure regulations were implemented using a difference-in-differences (DiD) method. Increases in market valuation as measured by Tobin's Q, Return on Equity (ROE), and Return on Assets (ROA) were among the metrics that demonstrated how ESG disclosure regulations substantially boosted firm profitability. The results show how environmental, social, and governance (ESG) disclosure can promote sustainable business practices, increase investor confidence, and decrease knowledge asymmetry. Company managers and regulators seeking to incorporate governance, social, and environmental factors into financial reporting systems may find useful information in this study, which contributes to the growing corpus of literature on the financial benefits of ESG compliance.