Mandatory ESG disclosure and trade credit: International evidence

Abstract

Abstract This study investigates how mandatory ESG disclosure influences firms' access to trade credit. Using data from 79 jurisdictions from 1998 to 2020, we find that affected firms receive more trade credit following the introduction of mandatory ESG disclosure. The main result holds for a series of robustness tests. Further mechanism analysis indicates that mandatory ESG disclosure reduces affected firms' information opacity and financial risk, which exposes their suppliers to less credit risk and thus increases trade credit. In addition, cross‐sectional analysis shows that the positive effect of mandatory ESG disclosure is more pronounced for firms with low bargaining power and jurisdictions with effective legal enforcement. Overall, our findings highlight the role mandatory ESG disclosure plays in facilitating informal financing.

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