The impact of mandatory non-financial disclosure and ESG score on financial performance and firm-risk- An empirical study of the Nordic market

Abstract: This research investigates the impact of mandatory non-financial disclosure and ESG score on financial performance and firm-risk using a panel of 278 Nordic companies covering the time period 2014-2019. Using a Difference-in-Difference technique, the results imply that the accounting-based financial performance increases subsequent to the EU Directive 2014/95/EU, while the firm-risk is reduced. In addition, using Ordinary-Least-Squares regression analyses, the results show that the financial performance increases from a unit increase in ESG score, while no evidence could be found of a relationship between ESG score and firm-risk. Evaluating the impact of the separated components of ESG, the social score implies to have a positive relationship with financial performance and total risk, while the governance score implies the opposite. The environmental score appears to have no impact on firm-risk, while a positive impact on the accounting-based financial performance.