The Relationship between ESG Disclosure, Financial Reporting Quality, and Investment Efficiency

The purpose of this chapter is to investigate the relationship between environmental, social, and governance (ESG) disclosure and both financial reporting quality (FRQ) and the efficiency of investment. The study focuses on a sample comprising all A-share listed companies in China from 2018 to 2022, employing various models and pertinent variables to assess the impact of ESG disclosure and FRQ on investment efficiency. The findings indicate that high-quality ESG disclosure is positively correlated with investment efficiency, with an increase in the volume of ESG data being associated with higher investment efficiency in firms. Additionally, superior ESG disclosure and FRQ are found to mitigate the information asymmetry between internal managers and external stakeholders, thereby enhancing the transparency of the company’s data and information to external parties. Despite the contributions of this study, it acknowledges limitations due to the nascent stage of ESG development in China, resulting in a limited scope of disclosure data available for analysis. This study exclusively examines the effect of ESG and FRQ on the investment efficiency of Chinese listed companies, suggesting that future research should consider additional factors influencing investment efficiency. This chapter enriches the existing literature on the correlation among ESG disclosure, FRQ, and investment efficiency. The findings provide valuable insights for scholars and practitioners interested in the impact of ESG disclosure and FRQ on corporate investment efficiency.