The blur phraseology in ESG reports and firm value: textual analysis evidence from Chinese listed companies

Environmental, Social, and Governance (ESG) reports provide a channel for stakeholder groups to assess corporate ESG performance. However, few studies have investigated the phraseology of ESG report texts. This study employs a textual analysis method to extract a quantitative textual blurriness indicator, the Blur Index, from ESG report texts. A higher Blur Index indicates less effective information in the ESG report. We then explore the impact of blur phraseology of ESG report texts on firm value, using data from Chinese A-share listed companies from 2017 to 2023. The results indicate that the blur phraseology of ESG reports can impact firm value, and a higher Blur Index is positively associated with firm market value. This counterintuitive result suggests that low-quality information disclosure may lead to unrealistic growth in firm performance. The Blur Index developed in this study effectively verifies the existence of blur disclosure strategies. Additionally, the effect of textual blurriness on firm value is more pronounced in environmentally sensitive firms and in firms with low equity concentrations. The results of the mechanism test indicate that supervisory institutional shareholdings can impede firms' incentives to use blur disclosure strategies in ESG reporting. This study represents the first instance of the use of textual analysis to study the strategy of blur disclosure employed in ESG report texts, expanding a method to examine the quality of corporate ESG disclosure. It enriches the literature on the relationship between ESG disclosure and firm value while providing a new perspective for understanding and improving the quality of ESG information disclosure.