Sustainability Disclosure and Firm Value: External <scp>ESG</scp> Evaluation and the Role of Advertising Intensity

ABSTRACT This study examines whether sustainability reporting becomes relevant to firm value partly through externally evaluated ESG performance and whether this process varies with firms' communication environments. Using firm‐year data on Korean listed firms from 2019 to 2021, we estimate regression models with year and industry fixed effects and firm‐level clustered standard errors, complemented by bootstrap mediation analysis. The results show that sustainability disclosure is positively associated with externally evaluated ESG performance and that externally evaluated ESG performance is positively associated with firm value. The mediation analysis further indicates that external ESG evaluation accounts for part, but not all, of the disclosure–value association. In addition, the positive association between sustainability disclosure and externally evaluated ESG performance becomes weaker as advertising intensity increases. These findings suggest that sustainability reporting matters not only as a disclosure practice, but also as part of a broader process through which publicly available ESG‐related information is incorporated into external evaluation. By treating externally evaluated ESG performance as an external evaluative output rather than a direct proxy for underlying ESG conduct, this study offers a more context‐sensitive account of when sustainability disclosure becomes economically meaningful.