ESG Performance and Information Asymmetry: The Moderating Role of Ownership Concentration

The aim of this paper is to investigate how ESG (environmental, social, and governance) performance can enhance the information environment. We consider whether ESG performance reduces information asymmetry and whether ownership concentration has a moderating effect on the association between ESG performance and information asymmetry. Based on a sample of nonfinancial listed firms from 16 European countries, we find evidence that overall corporate ESG performance reduces information asymmetry. Both the environmental and social pillars independently contribute to this significant relationship. Additionally, we find that a higher concentration of strategic investors negatively moderates the effect of ESG performance on information asymmetry. This effect indicates that this concentration allows these investors to leverage their private information advantage, thereby weakening ESG's role in reducing information asymmetry. Moreover, our results indicate that the positive effect of ESG performance on information asymmetry is more pronounced for firms operating in environmentally sensitive sectors. This finding shows that heightened scrutiny in these industries motivates greater ESG engagement to enhance legitimacy and protect the firm's reputation. Our findings are relevant to managers, capital market agents, and other stakeholders by offering insights into the crucial roles of ESG engagement in the information environment. Additionally, our findings are pertinent to regulators and policymakers as the regulation of ESG issues is an ongoing process.