Affiliation:
1. Department of Financial and Business Systems, Faculty of Agribusiness and Commerce Lincoln University Christchurch New Zealand
2. Department of Business Administration Shaheed Benazir Bhutto University Shaheed Benazirabad Pakistan
3. Department of Accounting and Financial Management, School of Business and Management Queen Mary University of London London UK
Abstract
AbstractMotivated by growing stakeholder demands for environmental, social and governance (ESG) disclosures and enhanced information transparency, this study investigates the relationship between ESG disclosures and future earnings risk in a globally diverse sample of firms. Using fixed‐effects panel regression models and endogeneity controls, we show that ESG disclosures exhibit a substantial negative impact on earnings risk. The sub‐dimensions, except governance, of ESG disclosures also reveal a negative impact on earnings risk. Notably, the social dimension's impact is economically more pronounced than the other ESG disclosure dimensions, indicating that social issues carry more value in reducing the uncertainty surrounding the future earnings risk of a firm. Besides, higher ESG reporting firms benefit more from reducing future earnings risk than low‐reporting firms. Our findings suggest that enhancing information transparency can help alleviate the agency problem arising from information asymmetry between corporate managers and shareholders. Moreover, higher disclosure in various ESG dimensions can address stakeholders' concerns regarding firm's social and environmental impacts.
Subject
Management, Monitoring, Policy and Law,Strategy and Management,Geography, Planning and Development,Business and International Management