PTDoes requiring firms to disclose sustainable practices change their value?
Between 2016 and 2022, seven emerging countries, Brazil among them, began to require listed firms to report what they do for the environment, for people and for good governance (ESG). The research followed 3,175 firms in 11 countries from 2014 to 2023 to see what the law did to their value. Explained in 12 screens.
One column per country, from 2014 to 2023. The red block appears in the year disclosure became mandatory (Table 1). The heights are equal on purpose.
Reporting what a firm does costs money and also informs
Disclosing ESG practices can be the firm's choice or a legal requirement. The difference matters.
Five finance theories disagree about the effect on firm value. Put each one on the scale.
Classification from Table 2 of the dissertation. Agency theory appears on both sides: the report can monitor managers or serve their image.
Seven countries made it mandatory, each in its own year
Malaysia and Peru went first, in 2016. Brazil and Chile came last, in 2022. South Africa, Argentina, China and Mexico created no such requirement in the period and serve as the comparison.
Start year of each rule according to Table 1 and section 3.1. Tap a country to see the law.
Earlier studies did not agree
The dissertation gathered four similar studies, all using the method you will meet on screen 07. Before flipping each card, bet: after disclosure became mandatory, did value or share prices improve, worsen or stay the same?
3,175 firms followed for ten years
Listed non-financial firms from 11 emerging countries, with data from 2014 to 2023 (Capital IQ and World Bank). Each firm appears in all ten years: 31,750 observations.
- Emerging country, according to the World Bank.
- At least five non-financial firms with an S&P credit rating in some year. For the author, firms with a credit rating care about the long term.
- Positive equity and assets above US$ 1 million.
Each dot = 250 observations (one firm in one year). Table C.1: 12,770 observations in the countries with a law and 18,980 in the others; firms = observations ÷ 10 (our calculation).
Two yardsticks for firm value
The research measures value in two ways. The market-to-book ratio (MTB) says how many times over the market pays for book equity. The total shareholder return (TSR) adds how much the share rose in the year and the dividends paid.
Made-up firm, with book equity of R$ 5.00 per share (R$ = Brazilian reais). Formulas from Table 4: MTB = market value ÷ equity; TSR = (price change + dividends) ÷ starting price.
Means and extremes from Table 5 (full sample). The black mark on each scale shows the mean.
Instead of levels, the research compares how much each group changed
The method is called difference-in-differences (DID). It treats the law as a natural experiment: it compares the change in firm value in the countries that made disclosure mandatory with the change in the countries that did not.
illustration Made-up numbers to show the logic. In the research, each country has its own "after" (the year of its law), and the model controls for what is specific to each country and each year. The method's assumption: without the law, both groups would have followed the same trend.
At first glance, value seems to fall with the law
In a simple correlation, years with the law in force go with lower market-to-book ratios. In the research model, the sign flips. Tap both cards.
Means of the two groups over all years, before matching (Table C.1). The bars compare the groups within each row.
With the law, value rose on both yardsticks
In all four models, firms in the countries that made disclosure mandatory gained value relative to firms in the countries that did not, always significant at 1%. The research hypothesis was confirmed.
Coefficients from Table 7 (models 1 to 4, p < 0.01). TSR is a fraction of the price, so 0.1551 equals 15.5 percentage points (our calculation, from the formula in Table 4). Means from Table 5.
Not every factor went the way theory predicted
The model also accounts for five characteristics of firms and countries. Bet on each one: does it push value up or down?
Sign expected by theory: Table 4. Sign found: Table 7, the same in the models with and without matching, all with p < 0.01.
Matching brought the groups closer, but did not make them equal
Firms in the two groups were different. To compare like with like, the author used propensity score matching (PSM): each observation from the countries with a law was paired with the most similar one from the other group, without repeats.
With the model re-run, the effect stayed positive and significant at 1%, a little smaller. But the differences between the groups shrank only slightly: country governance barely changed.
Standardized difference between the groups, in % (bias), Table A.1. Zero = equal groups. The table itself flags that overall imbalance remained high after matching (B and R indicators outside the reference range).
What changes for those who invest, disclose or regulate
Investors
Knowing that mandatory disclosure came with more highly valued shares helps decide where to put money.
Firms
Knowing that mandatory disclosure is associated with more value helps decide how much capital to put into sustainability reporting.
Regulators and governments
Helps assess these rules, calibrate incentives and penalties and attract foreign investment to emerging countries.
Researchers
Next steps: the IFRS S1 and S2 standards from 2026 and specific measures for each ESG dimension (emissions, staff turnover, green patents).
What this research does not say
- Few countries meet the criterion. Only 11 emerging countries had at least five firms with an S&P credit rating. · according to the author
- The law explains little of value. The model accounts for 1.6% of the differences in the ratio and 6.6% in return: value depends on many other things. · our note (Table 7)
- The method's assumption is not tested in the text. The dissertation does not show whether the two groups followed the same trend before the laws, nor how the effect evolves year by year. Brazil and Chile have only two years after the law. · our note
- Different laws, one event. "Comply or explain", phased rules and rules only for the 1,000 largest firms all count as the same change. · our note
Credits
FERREIRA, Elton John. A relação entre a divulgação obrigatória das práticas sustentáveis e o valor das empresas: uma análise de países emergentes. Master's dissertation (Business Administration), Universidade Presbiteriana Mackenzie, São Paulo, 2025. Advisor: Prof. Dr. Michele Nascimento Jucá.
Research supported by CAPES (Brazil's federal agency for graduate education). Data from Capital IQ and the World Bank; analysis in Stata. This version simplifies the work for a general audience; the formulas and full tables are in the original text.