Disclosure performance and firm value: The mediating role of financial reporting quality

Abstract

This study examines the relationship between environmental, social, and governance (ESG) disclosure and firm value, emphasizing the mediating role of financial reporting quality (FRQ), a transmission mechanism that remains underexplored in emerging markets. Using 3,978 firm-year observations of listed firms in Vietnam from 2016 to 2024, the baseline findings reveal that ESG disclosure exerts a positive and statistically significant impact on firm value. Among the individual ESG dimensions, the social pillar demonstrates the strongest influence. Structural equation modeling (SEM) further confirms that FRQ partially mediates this relationship; specifically, effective ESG disclosure enhances information transparency and mitigates earnings management, which in turn leads to higher investor confidence and superior valuation (Velte, 2017; Almahuzi, 2025). Additionally, propensity score matching (PSM) was utilized to address endogeneity and reverse causality concerns, confirming the robust positive effect of ESG on stock prices. This research contributes to agency and signaling theories by providing empirical evidence that integrating high-quality ESG disclosure with financial transparency is crucial to strengthen market confidence and promote sustainable growth in developing economies (Grewal et al., 2021).