Does ESG Disclosure Create Value? A Critical Review of the Evidence, with Attention to Emerging and Transition Economies

Abstract

Whether environmental, social, and governance (ESG) disclosure creates shareholder value is one of the most studied and least settled questions in modern corporate finance. This paper critically reviews the theoretical arguments and empirical evidence on the ESG disclosure–firm value relationship, with particular attention to emerging and transition economies, where institutional conditions differ fundamentally from the developed markets that dominate the literature. The review organises the theoretical terrain around four mechanisms — information asymmetry reduction, stakeholder and legitimacy effects, signalling, and agency costs of overinvestment — which generate opposing predictions and therefore make the question empirical. Synthesising the empirical literature, including large-scale meta-analytic evidence, the review concludes that the association between ESG disclosure and firm value is on balance modestly positive but highly conditional: it strengthens with disclosure credibility (assurance, standardised frameworks), investor sophistication, and institutional quality, and weakens or disappears where disclosure is boilerplate or unverifiable. In emerging and transition economies, the evidence indicates that foreign institutional ownership is the primary channel through which disclosure is priced, raising distributional concerns about a two-tier disclosure landscape. The review closes with implications for phased ESG regulation and an agenda for research on disclosure quality rather than disclosure quantity.