When does ESG disclosure pay? The role of institutional meta-signals in shaping financial outcomes

Purpose This study examines when environmental, social and governance (ESG) disclosure improves the financial performance of multinational enterprises (MNEs). Prior research shows that the ESG–financial performance relationship is mixed and context-dependent, yet less is known about how home-country institutions shape stakeholders’ interpretations of ESG disclosure. This study addresses that gap by examining how institutional conditions influence the credibility and financial value of firm-level ESG disclosure. Design/methodology/approach Drawing on signalling theory and institutional theory, this study introduces the concept of institutional meta-signals, defined as macro-level regulative, cognitive and normative conditions that shape stakeholder interpretation of ESG disclosure. Using panel data on 826 MNEs across 28 countries from 2013 to 2019, the study tests whether auditing and accounting standards, press freedom and social capital moderate the relationship between ESG disclosure and financial performance. System GMM and two-stage least squares estimation techniques are used. Findings ESG disclosure is, on average, negatively associated with financial performance. However, this relationship becomes more favourable in countries with stronger institutional meta-signals. Stronger auditing and accounting standards, greater press freedom and higher social capital enhance the credibility of ESG disclosure and improve its financial value. The results indicate that the performance effects of ESG disclosure depend on the credibility infrastructure of the home-country institutional environment. Research limitations/implications This study extends ESG and international business research by showing that the financial outcomes of ESG disclosure depend on home-country institutions. It contributes to signalling theory by conceptualising institutional meta-signals as second-order cues that shape stakeholders’ interpretations. The study is limited by its focus on large MNEs and country-level institutional indicators. Future research could examine other institutional dimensions, alternative firm settings and more fine-grained mechanisms linking ESG credibility to financial outcomes. Practical implications Managers should not assume that ESG disclosure will automatically improve firm performance. Its value depends on whether stakeholders perceive the disclosure as credible within the firm’s institutional context. For firms headquartered in weaker institutional environments, ESG disclosure may require stronger assurance, governance and reporting practices. The findings also suggest that policymakers can enhance the value of ESG disclosure by strengthening institutional conditions that support the credibility of reporting. Social implications The study shows that the effectiveness of ESG disclosure depends not only on firm communication but also on the broader institutional environment that enables stakeholders to trust it. Stronger auditing systems, freer media and higher social capital can improve transparency and accountability in ESG reporting. National institutions, therefore, play an important role in shaping whether ESG disclosure contributes to more responsible business conduct and more trustworthy capital markets. Originality/value This study develops the concept of institutional meta-signals to explain how home-country institutions shape the financial value of ESG disclosure. It reconceptualises institutions as interpretive infrastructures that influence stakeholder responses to firm communication. By integrating signalling theory with institutional theory, the study offers a new explanation for cross-national variation in the ESG–financial performance relationship and advances research on ESG disclosure, non-market strategy and MNE performance.