ESG Disclosure and Cost of Equity: Do Big 4 Audit Firms Matter?

This article examines the impact of environmental, social, and governance (ESG) disclosure on the cost of equity (COE) for Indian firms following regulatory changes in 2013–2014 that mandated ESG reporting. Using panel data from 586 nonfinancial firms listed on the National Stock Exchange of India between 2015 and 2022, the study finds that superior ESG disclosure significantly lowers the cost of equity, primarily driven by the governance component, while environmental and social disclosures are associated with a higher cost of equity. The presence of Big 4 auditors (Deloitte, Ernst & Young, PricewaterhouseCoopers, and KPMG) does not significantly moderate the ESG-COE relationship, suggesting audit quality mainly affects financial rather than nonfinancial information asymmetry. Additionally, the negative relationship between ESG disclosure and cost of equity is more pronounced in the manufacturing sector, reflecting greater investor sensitivity to ESG practices in industries with higher social and environmental impacts. These findings highlight the evolving role of ESG transparency in capital markets within the Indian context and have implications for corporate governance and investment strategies.