Corporate ESG disclosure and regulatory inquiry: Evidence from comment letters on annual reports

Using a sample of Chinese A-share listed firms from 2015 to 2021, this paper finds that corporate ESG disclosure reduces the likelihood of regulatory inquiries. Channel analysis demonstrates that corporate ESG disclosure lowers regulatory inquiry risk by reducing agency costs and business risks. This relationship is more pronounced in firms that have less disagreement in ESG ratings, have higher levels of digital transformation, operate in highly polluting industries, or are situated in more favorable institutional environments. Further analysis indicates that corporate ESG disclosure is associated with a lower probability of delayed responses by firms, the need for verification opinions from intermediary institutions by stock exchanges, and inquiries regarding risk information from stock exchanges. The study expands the literature on the determinants of regulatory inquiries. It also sheds light on corporations’ improvement of information disclosure.