The Effect of Environmental, Social and Governance Disclosure Quality on Tobin’s Q of Listed Deposit Money Banks in Nigeria

Abstract

This study examines the effect of environmental, social and governance (ESG) disclosure quality on Tobin’s Q of listed deposit money banks (DMBs) in Nigeria over the period 2014-2024. Departing from the quantity-based indices that dominate the emerging-market literature, the study operationalizes disclosure quality through a bespoke Integrated Disclosure Quality Classification (IDQC) framework that scores forty-five GRI banking-sector indicators along four weighted dimensions: content coverage (25%), information quality (35%), presentation format (20%) and verification and assurance (20%). Content analysis of the annual reports, integrated reports and standalone sustainability reports of eleven continuously listed DMBs yields a balanced panel of 121 bank-year observations, from which a composite Weighted Disclosure Quality Index (WDQI) and three pillar indices (EDQI, SDQI, GDQI) are constructed. After establishing stationarity (CIPS), cointegration (Westerlund) and cross-sectional dependence (Pesaran CD), the dynamic relationship is estimated using a two-step System GMM estimator with Windmeijer-corrected standard errors. The composite WDQI exerts a positive and statistically significant effect on Tobin’s Q (β = 0.0028, p < 0.05). Pillar decomposition shows that this effect is driven by governance disclosure quality (β = 0.0020, p < 0.05) and social disclosure quality (β = 0.0015, p < 0.10), while environmental disclosure quality is statistically insignificant (β = 0.0012). Post-estimation diagnostics confirm specification validity (AR(2) p = 0.62; Hansen J p = 0.28; VIF < 3), and fixed-effects OLS and Pooled Mean Group ARDL(1,1) estimators corroborate the direction of the relationship. Interpreted through Stakeholder and Signaling theories, the findings indicate that the Nigerian market prices the credibility and decision-usefulness of ESG reporting rather than its volume, but does not yet price environmental disclosure. The study recommends accelerated adoption of ISSB-aligned standards, mandatory independent assurance of sustainability reports, and the publication of a sectoral disclosure-quality league table by the Central Bank of Nigeria.