Do ESG Disclosures Signal Firm Value? Evidence from Capital Market Reactions in Emerging Economies

Abstract

This study examines whether Environmental, Social, and Governance (ESG) disclosure can be considered an indicator of firm value by synthesizing evidence from capital market reactions in emerging markets. A qualitative literature review approach is employed based on 25 scholarly documents published in reputable academic sources. The analysis focuses on the relationship between ESG disclosure quality, investor behavior, and firm valuation outcomes. The findings indicate that ESG disclosure is generally associated with positive capital market reactions, including improved firm value, reduced cost of capital, and lower information asymmetry. These effects are primarily driven by enhanced transparency, stronger corporate legitimacy, and increased investor confidence. However, the relationship is not consistent across all contexts. Institutional quality, regulatory enforcement, ESG reporting standards, and investor sophistication significantly influence the strength of market responses. In weaker institutional environments, ESG disclosure often produces limited or inconsistent valuation effects due to perceptions of symbolic reporting. In contrast, in more developed emerging markets, ESG disclosure functions as an effective signaling mechanism that is incorporated into investor decision-making. Overall, ESG disclosure is a conditional indicator of firm value, highly dependent on contextual and informational factors.