Purpose This study aims to empirically examine the impact of the implementation of the Corporate Sustainability Reporting Directive (CSRD) on stock market returns across the European Economic Area. Design/methodology/approach This study uses the event study method to examine the impact of the CSRD implementation (5 January 2023) on stock market returns in 27 European Economic Area nations. We use the market model estimation with a 252-day estimation window and a 15-day event window. The MSCI European Union index serves as the benchmark. The market model is further corrected for Exponential Generalized Auto-Regressive Conditional Heteroskedasticity. Findings The results indicate a significant positive stock market reaction to the CSRD implementation. The average significant event day impact is 0.45% and a significant cumulative impact of 3.48% on t+7. A significant (insignificant) positive event day abnormal return is evident in emerging (developed) markets. While the cumulative impact on emerging markets is 3.02% on t+5, that on developed markets is 4.43% on t+7. These findings support the Efficient Market Hypothesis and stakeholder theory. The results are robust to different tests. The study highlights the importance of ESG regulations in shaping market perceptions. Originality/value This study is among the first to empirically examine the stock market reaction to the CSRD. It contributes to the literature on ESG disclosure regulations and financial market responses, providing valuable insights for academics, policymakers, and practitioners. Investors can use these insights for portfolio diversification, policymakers can refine sustainability policies to balance compliance and transparency, and corporate managers can align ESG strategies with investor expectations.
Kumari et al. (Wed,) studied this question.