Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • July 2019
  • Article
  • Management Science

Market Reaction to Mandatory Nonfinancial Disclosure

By: Jody Grewal, Edward J. Riedl and George Serafeim
  • Format:Print
  • | Pages:24
ShareBar

Abstract

We examine the equity market reaction to events associated with the passage of a directive in the European Union (EU) mandating increased nonfinancial disclosure. These disclosures relate to firms’ environmental, social, and governance (ESG) performance and would be applicable to firms listed on EU exchanges or with significant operations in the EU. We predict and find (i) an on average negative market reaction, (ii) a less negative market reaction for firms having higher pre-directive nonfinancial performance, and (iii) a less negative reaction for firms having higher pre-directive nonfinancial disclosure levels. Results are accentuated for firms having the most material ESG issues, as well as investors anticipating proprietary and political costs as a result of the mandated disclosures. Overall, the results are consistent with the equity market perceiving that this disclosure regulation of nonfinancial information would lead to net costs (benefits) for firms with weak (strong) nonfinancial performance and disclosure.

Keywords

Nonfinancial Information; Nonfinancial Performance; ESG; ESG (Environmental, Social, Governance) Performance; Investor Behavior; Disclosure; Disclosure Regulation; Regulation; Sustainability; Corporate Performance; Information; Corporate Disclosure; Governing Rules, Regulations, and Reforms; Performance; Environmental Sustainability; Corporate Governance; Outcome or Result

Citation

Grewal, Jody, Edward J. Riedl, and George Serafeim. "Market Reaction to Mandatory Nonfinancial Disclosure." Management Science 65, no. 7 (July 2019): 3061–3084.
  • SSRN
  • Find it at Harvard

About The Author

George Serafeim

Accounting and Management
→More Publications

More from the Authors

    • June 2025
    • Faculty Research

    Transforming a Titan (C)

    By: George Serafeim and Lena Duchene
    • June 2025
    • Faculty Research

    Transforming a Titan (B)

    By: George Serafeim and Lena Duchene
    • June 2025
    • Faculty Research

    Transforming a Titan (A)

    By: George Serafeim and Lena Duchene
More from the Authors
  • Transforming a Titan (C) By: George Serafeim and Lena Duchene
  • Transforming a Titan (B) By: George Serafeim and Lena Duchene
  • Transforming a Titan (A) By: George Serafeim and Lena Duchene
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College.