Non-financial disclosure and stock price informativeness: the role of country-level institutional factors

Abstract

This study examines whether non-financial disclosure, and more precisely environmental, social and governance (ESG) disclosure, enhances stock price informativeness with respect to a firm’s future earnings. To do so, we analyse an international sample of listed firms from 24 developed countries and 20 emerging markets and developing economies (EMDEs) in the period 2006–2019. Stock price informativeness is captured by means of the future earnings response coefficient model. Our main research hypothesis postulates that ESG disclosure increases the sensitivity of current stock returns to future earnings. Although the research hypothesis is validated by the data, the impact of ESG disclosure is stronger in developed countries and when the institutional background is more effective. Within this subset of firms, we find a stronger impact amid those with higher information asymmetry and dispersed ownership. In general, ESG disclosure adds little to the information content of stock prices in EMDEs.