The price of environmental, social and governance practice disclosure: An experiment with professional private equity investors

This paper sheds light on the impact that environmental, social and governance (ESG) corporate practice disclosure has on equity financing. We present a unique framed field experiment in which professional private equity investors competed in closed auctions to acquire fictive firms. We hence observe that corporate non-financial (ESG) performance disclosure impacts firm valuation and investment decision and we quantify to which extent. Main result is an asymmetric effect, investors reacting more to bad ESG practice disclosure than to good ESG ones. Our findings are discussed in terms of practical implications for both investors and firm managers. •We study environmental, social and governance –ESG– issues in private equity financing.•We conduct a framed field experiment on 33 investors resulting in 330 observations.•Irresponsible ESG practices have a stronger impact than responsible ESG practices.•Irresponsible policies decrease firm price by 11%, 10% and 15% for E, S and G issues.•Responsible policies increase firm price by 5%, 5.5% and 2% for E, S and G issues.