Impact of ESG Disclosure on Financial Performance and Firm Valuation of Indian Listed Companies

Abstract This study examines the impact of Environmental, Social, and Governance (ESG) disclosure on financial performance and firm valuation of Indian listed companies, with particular focus on the mandatory Business Responsibility and Sustainability Report (BRSR) framework introduced by SEBI in 2021. Using a quasi-natural experimental design and analysing 3,690 firms from 2018 to 2024, the research reveals that mandated ESG disclosure signals enhanced transparency and legitimacy, leading to higher market valuations. However, compliance imposes short-term profitability costs due to the trade-off between reputational benefits and operational burdens. The study further investigates the mediating role of financial constraints, finding that ESG disclosure positively impacts financial performance with financial constraints acting as a partial mediator. Industry-specific analysis demonstrates heterogeneous effects across sectors, with social disclosures showing significant positive effects on firm financial position, firm value, and stock valuation, while governance disclosures reduce the cost of capital. The findings contribute to stakeholder and institutional theory literature in emerging market contexts and provide actionable insights for regulators, corporate managers, and investors.