Firms? sustainability, financial performance, and regulatory dynamics: Evidence from European firms

This study examines the association between firms' ESG reputational risk and financial per-formance under the EU regulatory policy changes and the COVID-19 period. Analyzing a panel of 1,816 European listed firms during the period 2007-2021, we document evidence that firms with lower ESG reputational risk have reduced information asymmetry, are less financial constrained and perform better. To establish causality, we design a quasi-natural experiment focusing on the 2014/95/EU directive of non-financial disclosing and the COVID-19 exogenous shock. Our findings are robust to several estimation techniques that address endogeneity, self-selection, and model sensitivity. Crown Copyright (c) 2022 Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).