Mandatory Disclosure and ESG Initiative: Evidence from the Smaller Reporting Company Rule
Jewon Shin  1@  
1 : Penn State University

I examine the impact of reduced mandatory disclosure on ESG initiatives. Using the SEC's 2018 rule reform for smaller reporting companies, I find that treated firms reduced their ESG disclosure quality and performance when their disclosure obligations decreased. This is mainly due to worse environmental and governance practices. Furthermore, this ESG performance decline is more prominent among financially constrained treated firms. However, treated firms with more board gender diversity, executive compensation tied to ESG, ESG-focused investors, and strong governance proxied by analyst coverage do not show a significant drop in ESG performance. This result suggests that firms adopt an opportunistic approach towards the ESG agenda when faced with eased disclosure obligations, thus providing an insight into how firms may react to the SEC's upcoming 2022 ESG disclosure obligations.


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