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Compulsory disclosure regulation: the effect of ESG on extreme risk

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  • Chien-Chiang Lee
  • Chih-Wei Wang
  • Wen-Ling Chen
  • Pei-Chin Hong

Abstract

We examined the impact of compulsory disclosure regulations on the relationship between the Environmental, Social and Governance (ESG) and firm-specific extreme risk. We used a difference-in-difference approach to solve endogenous concerns and found that the negative impact of the ESG score on extreme risk is more significant after announcing compulsory disclosure regulations. Additionally, we demonstrated that this effect becomes more substantial when firms issue green bonds. Finally, the subsample tests showed that the compulsory influence of the government is more evident in firms with high financial transparency and firms with low crash risk. Our empirical findings had policy implications for governments, regulators, and investors.

Suggested Citation

  • Chien-Chiang Lee & Chih-Wei Wang & Wen-Ling Chen & Pei-Chin Hong, 2024. "Compulsory disclosure regulation: the effect of ESG on extreme risk," Applied Economics, Taylor & Francis Journals, vol. 56(32), pages 3856-3869, July.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:32:p:3856-3869
    DOI: 10.1080/00036846.2023.2208849
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