A Novel Metric for Corporate Environmental Responsibility and Its Impact on Investment Inefficiency

ABSTRACT This study aims to establish a new measurement standard for quantifying Corporate Environmental Responsibility (CER) information and activities disclosed by enterprises and to examine the relationship between CER and investment inefficiency (IIE), with a specific focus on the mediating role of information asymmetry (IA). By analysing how CER influences IIE through information asymmetry, the study provides insights into how transparency and responsible environmental practices can enhance investment decisions and overall corporate performance. Regression analysis of 22,413 firm‐year observations from China A‐shares (2011–2021) shows that active CER disclosure effectively reduces IIE by mitigating information asymmetry, particularly moral hazard (MH) and adverse selection (AS). Robustness tests, including instrumental variable analysis, the Heckman self‐selection model, and Propensity Score Matching (PSM), consistently support these findings. The study also reveals that CER disclosures by non‐state‐owned enterprises (non‐SOEs) and enterprises less sensitive to environmental concerns (NES) significantly diminish IIE by addressing information asymmetry. This research underscores the need for enterprises to embrace environmental responsibility actively, encouraging proactive engagement and transparent disclosure of environmental activities and information.