Transparency and the Visibility of Misconduct: Evidence from ESG Disclosure Mandates

Mandatory disclosure is commonly intended to deter corporate misconduct by increasing transparency. We examine an alternative channel: disclosure may primarily change the likelihood that misconduct becomes detectable. Exploiting staggered introductions of ESG disclosure mandates across 53 countries, we study how regulation affects the observed incidence of misleading ESG communications identified by external monitors. Following mandate adoption, the number of detected incidents increases significantly. The rise is concentrated in areas with stronger scrutiny, among larger and more visible firms, in countries with higher institutional quality, and where media and civil society oversight are more effective. Moreover, capital markets react more negatively to incidents after disclosure becomes mandatory, particularly when claims are more verifiable. Together, the evidence indicates that disclosure reforms enhance the observability and credibility of ESG information, enabling outsiders to uncover misrepresentation rather than preventing it. Our findings highlight that transparency regulation can raise reported misconduct even as it improves accountability.