(Mandatory) ESG Disclosure and the Impact on Firm Value of Publicly Listed Companies on the Western Stock Market

Abstract

This thesis examines the impact of ESG transparency (ESG disclosure) on firm value in European and United States (US) equities, using Tobin's Q as the evaluation measure. The study utilizes Bloomberg's ESG disclosure score to assess 644 firms from Europe and the US. To isolate the influence of mandatory ESG reporting rules, a difference-in-difference regression is conducted, with the Non-Financial Reporting Disclosure (NFRD) as the exogenous shock. For this, European enterprises of the Stoxx Europe 600, subject to the European Union's (EU) NFRD, are benchmarked against US firms of the S&P 500, which do not yet have mandatory reporting processes. The empirical findings reveal that ESG disclosure, particularly in the realm of environmental information, enhances firm value. However, mandatory reporting standards like the NFRD hinder this positive effect due to information asymmetry caused by firms concealing unfavorable information. The thesis underscores the importance of establishing universal ESG reporting standards to promote transparency and comparability in stock markets.