IDEAS home Printed from https://ideas.repec.org/a/sae/globus/v23y2022i6p1558-1573.html

Are ESG Disclosures Value Relevant? A Panel-Corrected Standard Error (PCSE) Approach

Author

Listed:
  • Renuka Kumawat
  • Nikunj Patel

Abstract

Due to rising sustainability concerns across the globe, corporations are now offering voluntary environment, social, and governance (ESG) information to serve stakeholders’ interests. These voluntary ESG disclosures aid investors in making investment decisions by evaluating the firms’ sustainability. However, ESG reporting is still in its infancy and there are no regulatory standards; consequently, it is crucial to understanding the value relevance of ESG disclosures. Using panel corrected standard errors (PCSEs), the study investigates the impact of ESG disclosures on cost of capital. The sample of the study covers listed firms from NSE 500 from 2011 to 2020, that is, 10 years. The present analysis offers the value relevance of enhanced ESG disclosure in the form of reduced cost of capital through reduced information asymmetry. In this study, we employed voluntary disclosure theory and legitimacy theory to investigate disclosure level in emerging market. The study found a negative association between ESG disclosures and cost of capital, following the notion that non-financial disclosures reduce information asymmetry and ultimately cost of capital ( Chauhan & Kumar, 2018 ; Francis et al., 2008 ). However, individual E, S and G disclosure scores were not found significant.

Suggested Citation

  • Renuka Kumawat & Nikunj Patel, 2022. "Are ESG Disclosures Value Relevant? A Panel-Corrected Standard Error (PCSE) Approach," Global Business Review, International Management Institute, vol. 23(6), pages 1558-1573, December.
    • Handle: RePEc:sae:globus:v:23:y:2022:i:6:p:1558-1573
    DOI: 10.1177/09721509221128637
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/09721509221128637
    Download Restriction: no
    File URL: https://libkey.io/10.1177/09721509221128637?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fatemi, Ali & Glaum, Martin & Kaiser, Stefanie, 2018. "ESG performance and firm value: The moderating role of disclosure," Global Finance Journal, Elsevier, vol. 38(C), pages 45-64.
    2. Maria Baldini & Lorenzo Dal Maso & Giovanni Liberatore & Francesco Mazzi & Simone Terzani, 2018. "Role of Country- and Firm-Level Determinants in Environmental, Social, and Governance Disclosure," Journal of Business Ethics, Springer, vol. 150(1), pages 79-98, June.
    3. Rezaee, Zabihollah, 2016. "Business sustainability research: A theoretical and integrated perspective," Journal of Accounting Literature, Elsevier, vol. 36(C), pages 48-64.
    4. Hsiao, Cheng & Pesaran, M. Hashem & Pick, Andreas, 2007. "Diagnostic Tests of Cross Section Independence for Nonlinear Panel Data Models," IZA Discussion Papers 2756, IZA Network @ LISER.
    5. Abhinav Kumar Rajverma & Rakesh Arrawatia & Arun Kumar Misra & Abhijeet Chandra, 2019. "Ownership structure influencing the joint determination of dividend, leverage, and cost of capital," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1600462-160, January.
    6. Jennifer Francis & Dhananjay Nanda & Per Olsson, 2008. "Voluntary Disclosure, Earnings Quality, and Cost of Capital," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 46(1), pages 53-99, March.
    7. Rezaee, Zabihollah & Tuo, Ling, 2017. "Voluntary disclosure of non-financial information and its association with sustainability performance," Advances in accounting, Elsevier, vol. 39(C), pages 47-59.
    8. Vidya Sukumara Panicker, 2017. "Ownership and corporate social responsibility in Indian firms," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 13(4), pages 714-727, October.
    9. Rajesh Sharma & Pradeep Kautish, 2020. "Linkages between Financial Development and Economic Growth in the Middle-Income Countries of South Asia: A Panel Data Investigation," Vision, , vol. 24(2), pages 140-150, June.
    10. Bailey, Delia & Katz, Jonathan N., 2011. "Implementing Panel-Corrected Standard Errors in R: The pcse Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 42(c01).
    11. Diamond, Douglas W & Verrecchia, Robert E, 1991. "Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-1359, September.
    12. Zabihollah Rezaee & Ling Tuo, 2019. "Are the Quantity and Quality of Sustainability Disclosures Associated with the Innate and Discretionary Earnings Quality?," Journal of Business Ethics, Springer, vol. 155(3), pages 763-786, March.
    13. Cheng Hsiao, 2007. "Panel data analysis—advantages and challenges," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 1-22, May.
    14. Zhang, Rui & Sharma, Rajesh & Tan, Zhixiong & Kautish, Pradeep, 2022. "Do export diversification and stock market development drive carbon intensity? The role of renewable energy solutions in top carbon emitter countries," Renewable Energy, Elsevier, vol. 185(C), pages 1318-1328.
    15. Tirthankar Nag & Asish K. Bhattacharyya, 2016. "Corporate Social Responsibility Reporting in India: Exploring Linkages with Firm Performance," Global Business Review, International Management Institute, vol. 17(6), pages 1427-1440, December.
    16. Ng, Anthony C. & Rezaee, Zabihollah, 2015. "Business sustainability performance and cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 128-149.
    17. Beck, Nathaniel & Katz, Jonathan N., 1995. "What To Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review, Cambridge University Press, vol. 89(3), pages 634-647, September.
    18. Sussie C. Morrish & Morgan P. Miles & Michael Jay Polonsky, 2011. "An exploratory study of sustainability as a stimulus for corporate entrepreneurship," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 18(3), pages 162-171, May.
    19. Nejla Ould Daoud Ellili, 2020. "Environmental, Social, and Governance Disclosure, Ownership Structure and Cost of Capital: Evidence from the UAE," Sustainability, MDPI, vol. 12(18), pages 1-23, September.
    20. Robert G. Eccles & George Serafeim, 2013. "A Tale of Two Stories: Sustainability and the Quarterly Earnings Call," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(3), pages 8-19, September.
    21. repec:eme:jal000:j.acclit.2016.05.003 is not listed on IDEAS
    22. David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LLC, vol. 3(2), pages 168-177, June.
    23. Rajesh Sharma & Pradeep Kautish, 2021. "Aid-Growth Association and Role of Economic Policies: New Evidence from South and Southeast Asian Countries," Global Business Review, International Management Institute, vol. 22(3), pages 735-752, June.
    24. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    25. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    26. Zabihollah Rezaee, 2016. "Business sustainability research: A theoretical and integrated perspective," Journal of Accounting Literature, Emerald Group Publishing Limited, vol. 36(1), pages 48-64, June.
    27. Nekhili, Mehdi & Nagati, Haithem & Chtioui, Tawhid & Rebolledo, Claudia, 2017. "Corporate social responsibility disclosure and market value: Family versus nonfamily firms," Journal of Business Research, Elsevier, vol. 77(C), pages 41-52.
    28. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
    29. repec:hal:journl:hal-02311990 is not listed on IDEAS
    30. Moundigbaye, Mantobaye & Rea, William S. & Reed, W. Robert, 2018. "Which panel data estimator should I use? A corrigendum and extension," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 12, pages 1-31.
    31. Sharma, Rajesh & Sinha, Avik & Kautish, Pradeep, 2021. "Do economic endeavors complement sustainability goals in the emerging economies of South and Southeast Asia?," MPRA Paper 108163, University Library of Munich, Germany, revised 2021.
    32. Jamieson Odell & Usman Ali, 2016. "ESG Investing in Emerging and Frontier Markets," Journal of Applied Corporate Finance, Morgan Stanley, vol. 28(2), pages 96-101, June.
    33. Cheng Hsiao, 2007. "Rejoinder on: Panel data analysis—advantages and challenges," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 56-57, May.
    34. William R. Gebhardt & Charles M. C. Lee & Bhaskaran Swaminathan, 2001. "Toward an Implied Cost of Capital," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 39(1), pages 135-176, June.
    35. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    36. Robert G. Eccles & George Serafeim & Michael P. Krzus, 2011. "Market Interest in Nonfinancial Information," Journal of Applied Corporate Finance, Morgan Stanley, vol. 23(4), pages 113-127, December.
    37. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LLC, vol. 7(3), pages 281-312, September.
    38. Robert G. Eccles & Michael P. Krzus & George Serafeim, 2011. "Market Interest in Nonfinancial Information," Harvard Business School Working Papers 12-018, Harvard Business School.
    39. Jiao, Zhilun & Sharma, Rajesh & Kautish, Pradeep & Hussain, Hafezali Iqbal, 2021. "Unveiling the asymmetric impact of exports, oil prices, technological innovations, and income inequality on carbon emissions in India," Resources Policy, Elsevier, vol. 74(C).
    40. Chauhan, Yogesh & Kumar, Surya B., 2018. "Do investors value the nonfinancial disclosure in emerging markets?," Emerging Markets Review, Elsevier, vol. 37(C), pages 32-46.
    41. Ashis Kumar Pradhan & Barsha Nibedita, 2021. "The Determinants of Corporate Social Responsibility: Evidence from Indian Firms," Global Business Review, International Management Institute, vol. 22(3), pages 753-766, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sakhr Bani-Khaled & Graça Azevedo & Jonas Oliveira, 2025. "Environmental, social, and governance (ESG) factors and firm value: A systematic literature review of theories and empirical evidence," AMS Review, Springer;Academy of Marketing Science, vol. 15(1), pages 228-260, June.
    2. Muhammad Shahbaz & Nikunj Patel, 2025. "Sustainable development in a carbon‐conscious world: Quantile regression insights into CO2 emission drivers," Natural Resources Forum, Blackwell Publishing, vol. 49(2), pages 1560-1583, May.
    3. Protap Kumar Ghosh & Fakarudin Kamarudin & Saira Kharuddin, 2026. "Country’s regulatory system and non-performing loans: moderating effect of country’s income level," Economic Change and Restructuring, Springer, vol. 59(2), pages 1-27, April.
    4. Rajat Deb & Anita Behra, 2025. "Composite or Component-wise ESG Reporting: A Tangle," Metamorphosis: A Journal of Management Research, , vol. 24(2), pages 123-130, December.
    5. Salvi, Antonio & L'Abate, Vitiana & Petruzzella, Felice & Vitolla, Filippo & Raimo, Nicola, 2025. "Rising temperatures, rising transparency: Revealing the financial benefits of climate change disclosure," International Review of Economics & Finance, Elsevier, vol. 101(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rajat Deb & Anita Behra, 2025. "Composite or Component-wise ESG Reporting: A Tangle," Metamorphosis: A Journal of Management Research, , vol. 24(2), pages 123-130, December.
    2. Rezaee, Zabihollah & Tuo, Ling, 2017. "Voluntary disclosure of non-financial information and its association with sustainability performance," Advances in accounting, Elsevier, vol. 39(C), pages 47-59.
    3. Rafaela Gjergji & Luigi Vena & Salvatore Sciascia & Alessandro Cortesi, 2021. "The effects of environmental, social and governance disclosure on the cost of capital in small and medium enterprises: The role of family business status," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 683-693, January.
    4. Nicola Raimo & Alessandra Caragnano & Marianna Zito & Filippo Vitolla & Massimo Mariani, 2021. "Extending the benefits of ESG disclosure: The effect on the cost of debt financing," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(4), pages 1412-1421, July.
    5. Lutfa Tilat Ferdous & Tarek Rana & Richard Yeboah, 2025. "Decoding the impact of firm‐level ESG performance on financial disclosure quality," Business Strategy and the Environment, Wiley Blackwell, vol. 34(1), pages 162-186, January.
    6. Zabihollah Rezaee & Ling Tuo, 2019. "Are the Quantity and Quality of Sustainability Disclosures Associated with the Innate and Discretionary Earnings Quality?," Journal of Business Ethics, Springer, vol. 155(3), pages 763-786, March.
    7. Shan Zhou & Roger Simnett & Wendy Green, 2017. "Does Integrated Reporting Matter to the Capital Market?," Abacus, Accounting Foundation, University of Sydney, vol. 53(1), pages 94-132, March.
    8. Fu, Renhui & Kraft, Arthur & Zhang, Huai, 2012. "Financial reporting frequency, information asymmetry, and the cost of equity," Journal of Accounting and Economics, Elsevier, vol. 54(2), pages 132-149.
    9. Hema Diwan & Binilkumar Amarayil Sreeraman, 2024. "From financial reporting to ESG reporting: a bibliometric analysis of the evolution in corporate sustainability disclosures," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(6), pages 13769-13805, June.
    10. Néstor A. Clech, 2025. "Macroeconomic and institutional determinants of human capital wealth: gender disparities and implications," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 42(1), pages 121-153, April.
    11. Chauhan, Yogesh & Kumar, Surya Bhushan, 2019. "The value relevance of nonfinancial disclosure: Evidence from foreign equity investment," Journal of Multinational Financial Management, Elsevier, vol. 52.
    12. Schreder, Max, 2018. "Idiosyncratic information and the cost of equity capital: A meta-analytic review of the literature," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 142-172.
    13. Fayez A. Elayan & Kareen Brown & Jennifer Li & Yijia Chen, 2021. "The Market Response to Mandatory Conflict Mineral Disclosures," Journal of Business Ethics, Springer, vol. 169(1), pages 13-42, February.
    14. da Silva, Paulo Pereira & Vieira, Isabel, 2025. "ESG disclosure and labour investment efficiency," Research in Economics, Elsevier, vol. 79(3).
    15. Ella Mae Matsumura & Rachna Prakash & Sandra C. Vera-Muñoz, 2024. "Climate-risk materiality and firm risk," Review of Accounting Studies, Springer, vol. 29(1), pages 33-74, March.
    16. Chauhan, Yogesh & Kumar, Surya B., 2018. "Do investors value the nonfinancial disclosure in emerging markets?," Emerging Markets Review, Elsevier, vol. 37(C), pages 32-46.
    17. Veasna Trakem & Hongzhong Fan & Dyna Sam & Sokhan Chen, 2026. "How do agricultural trade liberalization, climate variability and change, and governance quality influence food security in ASEAN?," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 18(2), pages 495-540, April.
    18. Hany Eldemerdash & Hugh Metcalf & Sara Maioli, 2014. "Twin deficits: new evidence from a developing (oil vs. non-oil) countries’ perspective," Empirical Economics, Springer, vol. 47(3), pages 825-851, November.
    19. Hadiqa Ahmad & Muhammad Yaqub & Seung Hwan Lee, 2024. "Environmental-, social-, and governance-related factors for business investment and sustainability: a scientometric review of global trends," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(2), pages 2965-2987, February.
    20. Azmi, Wajahat & Hassan, M. Kabir & Houston, Reza & Karim, Mohammad Sydul, 2021. "ESG activities and banking performance: International evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:globus:v:23:y:2022:i:6:p:1558-1573. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.imi.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.