Conclusion and limitations
We investigate in this paper whether superior ESG disclosure affects firm value by using a large sample of UK public firms from the Bloomberg database over the period 2004-2013. We document that the ESG disclosure level is positively associated with firm value, and find that the interaction between higher CEO power and ESG disclosure is positively related to firm value. This evidence is strong and consistent for three different measures of ESG-related disclosure, i.e., the ESG, environmental, and social disclosure scores. Our results hold when we use two different financial measures, i.e., Tobin’s Q and ROA, an IV approach, and the Heckman (1979) two-stage estimation approach. Our findings suggest that ESG disclosures can enhance firm value through improved transparency and accountability, and enhanced stakeholder trust. In addition, the association between ESG disclosure level and firm value is more pronounced when CEO power is greater, indicating that shareholders treat ESG disclosure from firms with higher CEO power as associated with greater commitment to ESG practice. A variety of studies has suggested that the CEO is able to influence information and disclosure policy. These include Goldman & Slezak (2006), Singh (2006), and Axelson & Baliga (2009). Since disclosure quality reflects the executives’ ability to appreciate the underlying competitive environment and effectively anticipate future outcomes, higher disclosure quality could signal their ability to enhance firm value (Hui & Matsunaga, 2015).
