ESG Disclosures and Market Price: The Moderating Role of Firm Size and Industry Sensitivity

This study investigates the impact of firm-level Environmental, Social, and Governance (ESG) disclosures on firm market prices. We also examine whether firm size and industry sensitivity moderate the association between ESG disclosures and the market price. Using 582 firm-year observations of listed companies registered on the Australian Stock Exchange (ASX), we conduct panel data regression for ESG disclosures and financial data from 2018 to 2020. Our findings reveal that there is a positive association between individual and combined scores of ESG and market price, with this relationship being more pronounced for larger Australian firms. Participation in social activities by firms in sensitive industries is significantly positively associated with firm market price, but we do not find industry sensitivity to be a significant moderator for the relationship between environmental or governance reporting and market price. Our findings provide insights to corporate managers in determining how they can improve the market price by reporting more ESG information depending on their relative size and the nature of their industry. In addition to showing stakeholders how firms take responsibility towards a sustainable approach by disclosing environmental, social, and governance information, this study also reveals opportunities for further research in the multifaceted aspects of ESG reporting to fully uncover its nuances.