The Impact of ESG Disclosures on Firm Value : Evidence from Chinese Listed Companies (2013-2023)

Abstract

The study looks at what impact the Chinese companies listed when they disclose information related to environmental (E), social (S), and governance (G). Its use of a very rich dataset containing 9,170 firm-year observations over the 2013 to 2023 period. ESG disclosure is measured through the reputation rating agencies (Bloomberg). Firm value is measured using Tobin's Q and Market-to-Book ratio. the unique Chinese market, which is characterised by ownership structure, the ESG disclosure in a competitional market environment. Different analysis used from fixed effects panel regression models and addresses potential endogeneity concerns through Two-Stage Least Squares estimation. The findings reveal supporting stakeholder theory and the resource-based view of the firm which mean a positive and statistically significant relationship between ESG disclosure scores and firm value. The baseline fixed effects model indicates that a one-unit increase in the ESG disclosure score is associated with a 0.966% increase in Tobin's Q (p < 0.05). However, with M/B the ESG disclosure impact was negative. Also, there was evidence of non-linear effects, suggesting diminishing returns to ESG disclosure at higher levels. Another aspect of this study was to explores how this relationship impacted by the COVID-19 pandemic. The results indicate a strengthening of this relationship during the pandemic period, with the interaction between ESG scores and the COVID-19 dummy variable showing a positive and significant effect. In the matter of different impact for different industries the investigation shows significant heterogeneity in the ESG disclosure-firm value relationship across sectors, meaning the importance of considering industry type when evaluating ESG impacts. Also, in term of individual factors the result shows interesting results negative impact on firm value. These findings have important implications for corporate managers, investors, and policymakers in the Chinese market. They suggest that investments in ESG disclosure practices can yield tangible financial benefits, particularly in environmental areas. However, the non-linear effects and industry heterogeneity underscore the need for a nuanced approach to ESG strategy and evaluation. Our study contributes to the growing body of literature on ESG and firm value in emerging markets, particularly China. It provides a comprehensive examination of the ESG disclosure-firm value relationship, considering non-linear effects, industry-specific factors, and the impact of external shocks such as the COVID-19 pandemic. Future research could explore the long-term effects of ESG practices on firm value and investigate how the ESG-firm value relationship evolves as ESG practices become more established in emerging markets.