The Double Signal of ESG Reports: Readability, Growth, and Institutional Influence on Firm Value

The readability of a firm's financial disclosure has long been used as a variable to predict firm performance and explain investors' decision-making in the market. We investigate whether readability is informative for non-financial disclosure. Based on signaling theory and a sample of over 10,000 ESG reports released by Chinese public firms, this study explores how readability moderates the relationship between ESG ratings and firm value. Empirical evidence highlights that ESG ratings have a greater influence on firm value for firms releasing more readable ESG reports. The moderating effect of disclosure readability is weakened by firms' growth potential and institutional ownership due to the extent of information asymmetry in the market. These results are robust to the use of alternative readability measures. This paper contributes to the literature by emphasizing the importance of textual characteristics in sustainability reporting and providing actionable insights for practitioners and policymakers.