The impact of ESG information disclosure quality on firm value

. With green development advocated globally, China has firstly proposed a goal of carbon neutrality and carbon peak. Based on sustainable development theory, signal transmission theory, information asymmetry theory and stakeholder theory, this paper had used the data of 638 A-share listed companies in China from 2018 to 2020 to empirically analysed the relationship between ESG information disclosure quality and firm value. The study had concluded that the ESG quality is positively correlated with firm value. Although the impact of environment ( E ) and society ( S ) on firm value is greater than that of governance ( G ), the improvement of ESG split indicators will increase firm value. Finally, this paper had put forward suggestions for the firms and the government respectively.


Introduction
In September 2020, General Secretary Xi Jinping announced that China will strive to achieve carbon peak by 2030 and carbon neutrality by 2060 at the 75th UN General Assembly.However, global climate change is still intensifying, and the excessive carbon dioxide emissions have not been alleviated.
ESG supports firms to pursue financial reporting while coordinating the non-financial performance of the three aspects, so as to coordinate environmental and social responsibility in the process of realizing firm value, simultaneously promoting its long-term sustainable development (L.Wang, et al., 2022) [1] .
Contemporary research on ESG is mainly focused on the impact of ESG overall indicators on firm value, there are few studies on ESG split indicators.Therefore, this paper is expected to explore the impact of both the ESG and its split indicators on firm value.
China proposed and implemented ESG information disclosure in 2018.Although explored for several years, the ESG information disclosure in capital market is still immature (e.g.Z. Lou, 2021; J. Tong, 2021; G. Xu, et  al., 2022)  24 .There are many empirical research papers on corporate ESG quality and firm value, but some of the conclusions are different.(e.g.G. Xu, et al., 2022)  [4] .
The disclosure of ESG information can help firms promote positive interaction between firms, environment and society, therefore increase firm value and its sustainable development ability.This paper provides a reference for the government to formulate relevant policies and improve the enthusiasm of enterprises to carry out energy conservation and emission reduction.

Literature Review
Currently, many scholars have found that there is a correlation between company's ESG quality and firm value.ESG disclosure quality of firms can impact our society and performance of the public in turn affects company's profitability and value.
Studies have found that the three split indicators of corporate ESG will have different impacts on firm value (L.Zhang, H. Zhao, 2019) [5] , several other studies have shown a positive correlation between ESG quality and firm value (J.Luo, B. Zhao, 2022) 11 .A number of scholars have analyzed the impact of ESG split index changes on firm value.It is indisputable that good corporation governance (G) can effectively enhance firm value (L.Wang, et al., 2022)  1 .However, there are numbers of differences in the impact of environmental governance (E) and social responsibility (S) on firm value.The points are positive correlation, negative correlation and not clear.
In terms of the environment (E) and firm value, some scholars take environmental performance as a variable in their research, such as energy conservation and emission reduction.Most views are positive correlation and irrelevance, but there are also some different standpoints.
A variety of studies have shown that there is a positive correlation between environmental performance and firm value (G.Xu, et al., 2022)  4 .No correlation between environmental performance and firm value (F.Verbeeten, R. Gamerschlag, and K. Möller, 2016) 6 .
In the aspect of social responsibility (S), studies have shown that firms can reduce their cost of equity capital by improving social responsibility performance, thereby increasing firm value (H.Wei, Y. Yao, X. Ma, 2020) 7 .Small and medium-sized firms assume social responsibility is positively correlated with firm value.(L.Wang, et al., 2022)  1 .But some studies have proposed that corporate governance affects the improvement of firm value most, exceeds the effect of environmental and social responsibility (G.Ge, et al.,2022) 8 .
ESG impact on firm value was studied by analyzing the overall performance of ESG.There are also obvious differences in the issue, mainly including positive and negative correlations.A number of scholars have concluded through empirical analysis that ESG quality is positively correlated with firm value, and the positive impact of ESG quality on non-state-owned, small and non-polluting companies is greater than that of stateowned, large and polluting companies(L.Zhang, H. Zhao, 2019) 5 .The notion that ESG quality is negatively correlated with firm value is largely based on the agency theory (K.M. Eisenhardt, 1989) 9 , which means the corresponding problems can be caused by the separation of ownership and management rights of the enterprise.
Scholars have not reached a complete consensus on the relationship between ESG quality and firm value yet.The problems may be affected by relevant policies in local countries.Therefore, it is necessary to further study the mechanism of ESG quality affecting firm value.
In this paper, our study addresses the inconsistent findings surrounding the relationship between corporate ESG disclosure and firm value, and we have contribute in following aspects: Firstly, this paper used the overall indicator of ESG and split indicators E, S and G, which can help us to figure out the mechanism between ESG and firm value.Secondly, we used the OLS regression and the robustness test to reduce the bias, and provided new empirical evidence for this problem.We found that the improvement of ESG quality by firms can help increase firm value, and the impact of E and S on firm value is more significant than G. Thirdly, our paper extended the literature on the ESG quality and firm value, and provided helpful suggestions for companies and government.

Theoretical Analysis and Hypothesis
The sustainable development theory believes that the development of firms must take various aspects into account, rather than sacrificing the environment for more wealth (G.Zhou, et al., 2021) 14 .However, the cost of companies will also increase with the quality of environmental information disclosure improving, which may result in cost-benefit tradeoffs.Until the cost exceeds the expected benefit, it may cause the decline of firm value.Therefore, our first hypothesis is as follows: H1: Environment Governance (E) information disclosure is positively related to firm value.
The asymmetric information theory starts from the aspect of enterprises and the public (G.Zhou, D. Ruan, C. Fan, 2021) 10 , which means subjects with sufficient information tend to have an advantage and a better position.Disclosure of ESG information by companies can narrow the gap of information mastery between different entities.Currently, the public tends to evaluate a firm from different aspects comprehensively, not only its profitability.When a firm conducts great ESG quality, it can improve its goodwill and the sustainable competitiveness.Therefore, ESG quality of firms is an important indicator to measure its social responsibility.Based on this, this paper proposes the second hypothesis: H2: Social responsibility (S) information disclosure is positively related to firm value.
According to the stakeholder theory, a firm is a community of interests consisting of internal, external and remote stakeholders (Z.Lou, 2021) 2 .The explanation given by Friedman (1970) 12 broke through the traditional concept of shareholder benefit maximization and weaken the status of material owners.Clarkson 13 expanded the definition of stakeholders, believing that stakeholders are groups and individuals who make certain investments, bearing certain risks in the production and operation activities of enterprises.Enterprises with excellent ESG quality should not only increase profits, but also optimize resource allocation and consider stakeholders.Therefore, we propose the third hypothesis: H3: Corporate governance (G) is positively related to firm value.
Firms' property rights nature also has impact on the relationship between ESG quality and firm value.In China, differences in the ownership of firms will affect ESG quality on firm value.Relevant empirical studies have also found that ESG quality of non-state-owned enterprises is significantly positively correlated with firm value (G.Xu, et al., 2021) 4 .Therefore, different property rights of companies may have impact on their ESG quality, then affects firm value.Then come to our fourth hypothesis: H4: State-owned and non-state-owned ESG ratings have different degrees of impact on firm value.
ESG information disclosure can reduce the financial risk of companies, thereby improving firm value (L.Wang, et al., 2022) 1 .ESG information disclosure will not have a negative impact on the short-term financial quality of firms (J.Luo, B. Zhao, 2022) 11 .Therefore, ESG quality indicates the robustness of the long-term operation of the company and its ability to create and grow in value, which has a positive impact on the improvement of the company's value.Therefore, we proposed fifth hypothesis: H5: The overall quality of ESG contributes to enhancing firm value.

Sample and Data
We selected China A-share listed companies from 2018 to 2020 as our sample, which contains 940 unique firms and 5797 observations.All data are collected from the CSMAR database.We selected year 2018 as the starting year as the Green Investment Guidelines (Trial) was issued by the Securities Investment Fund Association of China in 2018, which first provided detailed guidelines for ESG information disclosure of China list companies.The data are filtered as follows: i. Deleted samples with missing data; ii.Deleted samples of listed companies in the financial industry; iii.Conducted 1% tail reduction with Stata 17.

Explained Variable
We used EPS as a proxy to measure the firm value.EPS (earnings per share) is the ratio of after-tax profit to total equity, reflecting the net profit per share.We also used Roe (the return on net assets) as the proxy for firm value in robustness test.As shown in Table 1.

Explanatory Variables
The key explanatory variable of this paper is ESG, which establishes an ESG evaluation system to classify the ESG quality of firms to three indicators of E (environmental governance), S (social responsibility) and G (corporate governance).ESG score equals to the average value of the three-split indicator.The ESG rating has 9 levels, namely C, CC, CCC, B, BB, BBB, A, AA, AAA from low to high.

Control Variables
This paper also selected the following variables as control variables: Lev, Growth, Top10 and Property.

Models
In order to study the impact of ESG quality on firm value, this paper constructed the following OLS regression model: 1) examines the impact of the overall ESG score on firm value.The dependent variable is   , representing the firm value.The independent variable is   , measuring the ESG quality of the company i in year t.The key coefficient in this model is  1 , namely the regression coefficient of the dependent variable   , its size represents ESG's degree of influence on EPS.
In further studies, we want to find the impact of the split indicators of the ESG on the firm value, and then constructed the following model (2-4): =  0 +  1   +  2   +  (2)   =  0 +  1   +  2   + (3)   =  0 +  1   +  2   +  (4) Model ( 2) studies the impact of E (environmental governance) on firm value for firm i in year t.The dependent variable is   , which represents the E-score in the firm ESG evaluation system.The key coefficient is  1 , namely the regression coefficient of   , its values and the amount of size represents E's degree of influence on EPS.Model (3) studies the impact of S (social responsibility) on firm value.The dependent variable is   , which represents the S-score.The key coefficient is  1 , namely the regression coefficient of   , its values and the amount of size represents S's degree of influence on EPS.Model (4) studies the impact of G (corporate governance) on firm value.The dependent variable is   , which represents the G-score.The key coefficient is  1 , namely the regression coefficient of   , its values and the amount of size represents G's degree of influence on EPS.
In those above models,  0 represents the intercept term,  2 represents the regression coefficient of the control variable, i represents the enterprise and t represents the year.The control variable set is   .

Descriptive Statistics
Before correlation analysis, this paper firstly conducts descriptive statistics, as shown in Table 2, which shows that the maximum EPS of the sample companies is 37.17 in column 5, and the minimum value is -7.999 in column 4, means a significant difference in the corporate earnings per share in the capital market assessment.Th e maximum and minimum Roe of the sample companies are 0.543 and -21.5 respectively in column 4 and 5, which shows that firms have large difference in income level and firm value.The maximum value of ESG of all samples is 7 in column 5 and the minimum value is 0 in column 4, the mean value is 2.075 in column 2, which shows that the ESG quality of the companies is lower than the median.The maximum values of E, S and G are 8.4, 7.73 and 6.83 in column 5 respectively.The standard deviations of the three-split indicators are 1.783, 1.539 and 1.228 in column 3, shows that the quality of E, S, and G varies greatly among different companies.The average value of Lev of the sample companies is 0.518 in column 2 and the standard deviation is 0.209 in column 3, which indicates that the financial leverage ratio is high.The average annual growth of enterprises is 40.2% in column 2, and the standard deviation is 9.899 in column 3, means growth ability varies greatly from enterprise to enterprise.The equity concentration has an average value of about 63.93 in column 2, means the top ten shareholders hold 63.93% of the equity of listed companies.The average value of property rights of sample enterprises is 0.533 in column 2, indicating that about 53.3% of the enterprises are state-owned enterprises, and 46.7% of the enterprises are non-state-owned enterprises.

Correlation Analysis
In order to ensure the validity and rationality of the empirical evidence, this paper analyzed the correlation among explanatory variables, explained variables and control variables, as shown in the unreported table .The key explanatory variables ESG, E, S in the unreported table show significant correlation at 1% level, which is consistent with our hypothesis of the article.However, there is no significant relationship between the G variable and the explained variable EPS, which indicates G has no significant correlation with the firm value.
Variable Lev is negatively related to EPS at the 1% level, which means the firm value will decrease when the asset-liability ratio increases.The firm value is significantly affected by the company's net asset indicators such as Roe, and the company's top ten equity capital concentration Top 10.

Benchmark Regression Results
This paper uses stata17 to conduct regression by OLS (Ordinary Least Squared) regression model, the regression results are shown in Table 3. EPS and the four independent variables all show a significant positive correlation with the dependent variable EPS at the 1% level, indicates that firm value will increase with the rise of E, S, G and ESG quality.The results of column ( 1)-( 4) in table 3 can support our main expectations.
In order to figure out the impact of different property rights nature, we also classified our sample into stateowned enterprises and non-state-owned enterprises, and conducted OLS regression respectively.It can be seen from the classification regression results in Table 4.The column (1)-( 4) is the results of state-owned enterprises and the column ( 5)-( 8) that of non-state-owned enterprises.The results show that ESG, E, S and G quality on the value of non-state-owned enterprises is significantly greater than that of state-owned enterprises.For non-state-owned enterprises, S is significantly positively correlated with EPS at the level of 10%, the remaining independent variables are significantly positively correlated with EPS at the level of 1%.As for state-owned enterprises, although E and ESG are significant with EPS at the 1% level, G is only significant at the 10% level, and S is not even significantly correlated with EPS.
From the column (4) and column (5) in the table 4, the ESG quality of non-state-owned enterprises has a significant positive correlation with Growth at the level of 1%, which indicates that the improvement of ESG quality of non-state-owned enterprises has a significant positive impact on their growth ability, but there is no significant impact on the improvement of related performance of state-owned enterprises.The reasons may be due to state-owned enterprises having more completed information disclosure regulation, and stateowned enterprises themselves strictly abide by state regulations in environmental and social governance.

Robustness Test
In order to verify the robustness of our results, this paper used Roe as the alternative proxy for firm value.It can be seen from Table 5.Independent variables E, S, G, ESG and the dependent variable Roe show a significant positive correlation at the level of 1%, which is basically consistent with the above analysis results.Therefore, great ESG quality has a positive impact on firm value.

Conclusions
We investigated the impact of ESG quality on firm value based on the data of Chinese companies from 2018 to 2020.We also divided the companies into state-owned enterprises and non-state-owned enterprises and made OLS regression respectively to find the difference.In the robustness test, we used Roe instead of EPS for regression analysis to improve reliability of results.
We draw the conclusions as follows: First, the improvement of ESG quality by firms can help increase firm value.Second, for the three split aspects of ESG, the impact of E and S on firm value is more significant than G. Third, the impact is more obvious in non-stateowned enterprises than state-owned enterprises, which may due to state-owned enterprises had more completed regulation.
The suggestions are as follows: As the information provider of ESG disclosure, firms should pay more attention to improve ESG quality.Specifically, the stateowned enterprises should put more emphasis on the improvement of E and G performance, while non-stateowned enterprises should focus more on the improvement of E and S performance.As for the government, it should explore new appraisal methods and evaluation systems for various types of firms as the policymakers in our capital market, and also conduct specific regulations guidelines in ESG information disclosure for companies.
There are some limitations for our studies.First, we cannot test the long-term effect of ESG quality on firm value due to the short-period data, so it deserves to explore the long-term effect.Second, our sample only consists of China's firms, which may exist deviation, so we may extend our research on international firms in the future.

Table 1
The Definitions and Measurements of Variables Ratio, which can be calculated as: Total End-of-Period Liabilities / Total End-of-Period Assets Roe Return On Net Assets, which can be calculated as: Net Profit / Net Assets Balance Growth Growth Ability, which means net profit growth rate or operating income growth rate Top10 Ownership Concentration, which means Shareholding ratio of top ten shareholders Property Nature Of Ownership, State-owned enterprises is 1, non-state-owned enterprises is 0

Table 2
Descriptive Statistics

Table 3
Benchmark Regression Results

Table 4
Classification Regression Results of Enterprise Property Rights