ESG disclosures as a double-edged sword: Protective impacts and risks in the social media era

Social media has permeated everyday life, providing platforms for information dissemination, personal sharing, and maintaining interpersonal connections. Its role in the business domain has become equally pivotal, serving as a vital conduit for corporate communication, consumer engagement, and community interaction. Crucially, social media levels the communicative playing field, empowering stakeholders previously devoid of a voice to amplify their concerns and rally like-minded individuals, potentially exerting substantial influence on corporate entities. This study explores the influence of Weibo discussions on Environmental, Social, and Governance (ESG) topics on the stock performance of 141 Chinese companies listed in Hong Kong, utilizing 4,320 hot search topics to analyze market reactions. Our findings corroborate the significant role of social media as a digital citizen square where stakeholders not traditionally engaged in financial dialogues can significantly impact market perceptions and valuations. We find that negative discussions markedly harm company valuations, while positive sentiments foster minor beneficial effects on stock prices. Crucially, our research highlights the complex functionality of ESG disclosures as both a shield and a potential risk: while they can mitigate negative repercussions during crises of negative publicity, they also set high transparency standards that may increase scrutiny and potentially lead to adverse market outcomes during stable periods. This study extends the signaling theory to social media contexts and provides empirical support for ESG's role in risk mitigation, offering nuanced insights into stakeholder theory and ESG communication strategies in the digital age.