Bridging the Information Gap: Corporate Sustainability Disclosure and Retail Investor Trading in Emerging Markets

ABSTRACT This study examines the association between corporate ESG disclosure quality and retail investor trading behavior in Chinese A‐share market, where retail investors account for approximately 90% of trading volume. Using a five‐dimensional disclosure quality framework based on information economics principles and 8756 firm‐year observations (2016–2023), we document several findings. A one‐standard‐deviation increase in ESG disclosure quality is associated with an 8.3% increase in retail trading volume (approximately 2.9 percentage points relative to a sample mean of 35.2%), corresponding to approximately RMB 190 million in additional annual retail trading volume per firm based on sample averages. Mediation analysis suggests that information asymmetry accounts for approximately 40% of this association, operating through reduced bid–ask spreads, analyst forecast dispersion, and illiquidity. The association is significantly stronger in weaker information environments (43% larger) and contexts with higher ESG demand (53% larger). These findings extend the literature on ESG disclosure by developing a five‐dimensional quality framework beyond binary indicators, quantifying the information asymmetry channel, and providing a theoretically motivated test in a retail‐dominated emerging market. While causal inference remains challenging, the results offer insights for disclosure standard setting in emerging markets with similar characteristics.