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Dr. Lynn Linghuan Wang
Assistant Professor of Accounting
Bocconi University Milan, Italy

This paper studies whether and how ESG disclosure regulations imposed on banks generate transmission effects along the lending channel. I use a setting of U.S. firms borrowing from non-U.S. banks and exploit the staggered adoption of ESG disclosure regulations in banks’ home countries. I find that exposed borrowers of affected banks improve their environmental and social performance following the disclosure mandate. The effects are stronger when a disclosure regulation induces a greater increase in the amount of new and hard information provided by banks, and when the lending relationship is more important for a borrowing firm. Furthermore, exposed borrowers with better environmental and social performance obtain more favorable loan terms and are more likely to maintain the relationship with affected banks. Collectively, this study documents the role of lending relationships in transmitting the real effect of ESG disclosure regulations from banks to borrowing firms.