Does Non-Financial Information Disclosure Affect Informal Financing?

This study examines the economic implications of non-financial information disclosure for firms’ use of informal financing. Using a staggered difference-in-differences design, I find that firms increase their reliance on trade credit following the introduction of ESG disclosure mandates. Consistent with ESG disclosure regulations improving information environment, I document that the effect is stronger in countries with poor pre-regulation information environments, low levels of societal trust, and high levels of ESG awareness. The relation is also more pronounced if the disclosure requirements are implemented by government institutions and on a full compliance basis. Firms with higher liquidity needs benefit more from ESG disclosure mandates. The effect moves down through the supply chain as firms give more trade credit to their customers after ESG disclosure is mandated. Overall, the results suggest that non-financial information plays a critical role in firms’ access to informal financing.