Publications
Publications
- July 2019
- Management Science
Market Reaction to Mandatory Nonfinancial Disclosure
By: Jody Grewal, Edward J. Riedl and George Serafeim
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.
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