How ESG Disclosure Creates Value: The Mediating Effect of ESG Performance and the Moderating Role of Sin Stock Sectors

This study investigates when and how ESG disclosure is associated with firm value by examining ESG performance as a mediating mechanism and sin stock sectors as a critical boundary condition. Drawing on signaling theory, we argue that ESG disclosure generates economic value only when it is credibly translated into externally assessed ESG performance. In sin stock sectors, however, ESG disclosure is more likely to be perceived as compliance‐driven, undermining its signaling effectiveness. The findings show that ESG disclosure is positively associated with financial performance both directly and indirectly through ESG performance, supporting its role as a key transmission channel. The results also provide suggestive evidence that these effects are weaker in sin stock sectors, where both the direct valuation effect and the indirect performance channel are weakened. These results suggest that ESG disclosure does not have uniform economic consequences and that its effectiveness may depend on industry context.