In the context of greater demand for corporate transparency, there is a growing pressure on boards to produce and communicate information to their investors and stakeholders. The current literature on integrated reporting shows that the provision of ESG information is a crucial factor that improves corporate governance by reducing agency problems. This issue is also critical in emerging economies, and particularly among Latin American firms. The concentration, opacity, and lack of evidence about ESG disclosure in less developed financial markets provide a promising environment to study the implications of board heterogeneity and ownership structure on strategic corporate decisions such as the disclosure of ESG indicators in developing economies. Using Tobit panel data models, we study how these factors affect the extent of ESG disclosure by Chilean listed firms. Our main results suggest that a board’s independence and gender diversity positively influence the extent of disclosure of ESG indicators. Our evidence helps firms concerned with strengthening their board’s features, investors that require screening firms’ ESG risk factors, and supports regulators’ decisions on setting norms regarding the extent of disclosure of ESG information by firms.

Current challenging environments pressure firms to improve their overall ESG performance. However, there is tension between the benefits of ESG disclosure and firm performance. We deepen the understanding of ESG disclosure’s contribution to firms’ cost of debt in an emerging economy context. This issue is critical in Latin America–a region with reduced financing, ample company heterogeneity, and scarce evidence associating ESG disclosure and firms’ debt financing. Using fixed effects models, for the 2015–2020 period, we study Chilean listed firms. We explore two association channels between ESG disclosure and the cost of debt financing. Through a direct channel, greater disclosure relates to a lower cost; however, through an indirect channel, disclosure interacts with growth opportunities–a proxy for firms’ prospective risk–and greater disclosure relates to a higher cost. Hence, evidence suggests that ESG disclosure affects the cost of financing in two opposite directions. Our results delve into how ESG disclosure encloses essential economic implications, particularly in countries that have recently adopted ESG practices: For regulators, on developing rules of ESG disclosure that consider their financial effects; for firms, on enhancing their ESG communications policies; and finally, for creditors, on the need to introduce ESG indicators in their financing decision-making.

Firms are facing pressure to convincingly communicate to stakeholders their environment, society, and corporate governance (ESG) disclosure. In developing countries, where frictions among controlling and non-controlling shareholders are pervasive, the possible dissensus inside boards regarding ESG disclosure remains understudied. We investigate the ways in which boards’ heterogeneity between the interests of controlling groups and the interests of institutional investors influences ESG disclosure of firms in the Latin American context. Using social networks and logit panel data models, we analyze for 2015-17 the probability of ESG disclosure by 124 Chilean listed firms. Our evidence suggests that the influence of controlling shareholders through directorate interlocking has a negative relation with ESG disclosure. Additionally, we observe that the influence of institutional investors on ESG disclosure is not yet critical. Moreover, we find partial evidence of the presence of tension within the boards regarding ESG reporting between the directors that represent controlling shareholders and institutional investors. Considering the importance of institutional investors and the ubiquity directorate interlocking among Latin American’ firms, our results are relevant for regulators involved in advancing the rules of ESG disclosure practices, institutional investors focused on enhancing their ESG investment strategies, and firms engaged in improving the ESG decision-making within their boards.

This investigation connects two crucial economic and financial fields, financial networks, and forecasting. From the financial networks perspective, it is possible to enhance forecasting tools, since econometrics does not incorporate into standard economic models, second-order effects, nonlinearities, and systemic structural factors. Using daily returns from July 2001 to September 2019, we used minimum spanning tree and planar maximally filtered graph techniques to forecast the stock market realized volatility of 26 countries. We test the predictive power of our core models versus forecasting benchmarks models in and out of the sample. Our results show that the length of the minimum spanning tree is relevant to forecast volatility in European and Asian stock markets, improving forecasting models performance. As a new contribution, the evidence from this work establishes a road map to deepening the understanding of how financial networks can improve the quality of prediction of financial variables, being the latter, a crucial factor during financial shocks, where uncertainty and volatility skyrocket.

The financial market is a complex system in which the assets influence each other, causing, among other factors, price interactions and co-movement of returns. Using the Maximum Entropy Principle approach, we analyze the interactions between a selected set of stock assets and equity indices under different high and low return volatility episodes at the 2008 Subprime Crisis and the 2020 COVID-19 outbreak. We carry out an inference process to identify the interactions, in which we implement the a pairwise Ising distribution model describing the first and second moments of the distribution of the discretized returns of each asset. Our results indicate that second-order interactions explain more than 80% of the entropy in the system during the Subprime Crisis and slightly higher than 50% during the COVID-19 outbreak independently of the period of high or low volatility analyzed. The evidence shows that during these periods, slight changes in the second-order interactions are enough to induce large changes in assets correlations but the proportion of positive and negative interactions remains virtually unchanged. Although some interactions change signs, the proportion of these changes are the same period to period, which keeps the system in a ferromagnetic state. These results are similar even when analyzing triadic structures in the signed network of couplings.