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Role of Country- and Firm-Level Determinants in Environmental, Social, and Governance Disclosure

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Abstract

In recent years, companies receive pressure to release environmental, social, and governance (ESG) disclosure, since these are perceived as critical issues by society. Despite this pressure, ESG disclosure practices considerably vary by firm. Prior academic literature investigated country- and firm-level factors determining such variation, alternatively adopting the institutional and legitimacy theory. By combining these theories in a unique framework, this study investigates the extent to which social structures (i.e., institutional theory) and social legitimization (i.e., legitimacy theory) influence ESG disclosure practices and each pillar. Results obtained using a cross-country sample of 14,174 firm-year observations during 2005–2012 provide evidence that country-level characteristics such as a political system (legal framework and corruption), labor system (labor protection and unemployment rate), and cultural system (Social Cohesion and Equal Opportunities) significantly affect firms’ ESG disclosure practices. However, their impact is heterogeneous in that they either reduce or enhance disclosure levels and may differ by pillar. Results for firm-level characteristics related to a firm’s visibility (analysts coverage, cross-listing, leverage, and size) demonstrate a positive and homogeneous effect on ESG disclosure and each pillar. These results inform policy makers and regulators aiming to enhance ESG disclosure levels of the risk they incur when managing variables related to social structure and the benefits of exposing firms to higher visibility.

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Notes

  1. The results for the analyses can be made available upon request.

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Acknowledgments

We gratefully acknowledge the helpful comments received from Domenec Melé, Ignacio Ferrero, Pierre Chaigneau, Bill Rees, and all the participants at the 18th IESE International Symposium on Ethics, Business and Society (Barcelona, Spain), SIDREA 2014 (Palermo, Italy), the 38th European Accounting Association (Glasgow, United Kingdom), EURAM 2015 (Warsaw, Poland) and two anonymous reviewers at the SIDREA Conference (Palermo, Italy), 2014.

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Authors and Affiliations

  1. Accounting and Finance Division, Economics and Management School, University of Florence, Via delle Pandette 9, Building D6, 50127, Florence, Italy

    Maria Baldini, Giovanni Liberatore & Francesco Mazzi

  2. Department of Business Economics, Erasmus School of Economics, Burgemeester Oudlaan 50, P.O. Box 1738, 3000 DR, Rotterdam, The Netherlands

    Lorenzo Dal Maso

  3. Department of Economics, University of Perugia, Via A. Pascoli, 20, 06123, Perugia, Italy

    Simone Terzani

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  1. Maria Baldini
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  2. Lorenzo Dal Maso
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  3. Giovanni Liberatore
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  4. Francesco Mazzi
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Correspondence to Simone Terzani.

Appendices

Appendix 1

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Table 6 Country-specific variables
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Appendix 2

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Table 7 Firm-specific variables
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Baldini, M., Maso, L.D., Liberatore, G. et al. Role of Country- and Firm-Level Determinants in Environmental, Social, and Governance Disclosure. J Bus Ethics 150, 79–98 (2018). https://doi.org/10.1007/s10551-016-3139-1

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