Environmental and Social Disclosure and Firm-Level Innovation

Using the staggered introduction of 87 country-level regulations that mandate firms to report specific environmental or social (E&S) information, I document that disclosure of financially immaterial E&S information has material effects on firms' investment and financing decisions. Firms domiciled in countries that mandate E&S transparency increase R&D expenditures and patenting activity after disclosing. Transparent non-financial disclosure reduces financing frictions, resulting in more innovation for equity-dependent firms and increased reliance on external equity. It also improves shareholders' contracting and monitoring abilities, incentivizing managers to invest innovation. Fixed capital investment, which is less sensitive to information frictions, does not change following E&S disclosure. Additionally, I only observe changes to investment and financing decisions when E&S disclosure is mandatory—highlighting the unique value of consistent and comparable disclosure