The Power of Ethics: Merchant Culture and Corporate Environmental, Social, and Governance (ESG) Disclosure

ABSTRACT Environmental, Social, and Governance (ESG) disclosure has emerged as a strategic imperative for sustainable development, yet the full range of its drivers remains unexplored. While formal institutions, such as environmental regulations, have been scrutinized, the impact of informal institutions, particularly traditional culture, has largely been uncharted. We empirically examine the impact of traditional Chinese business group culture—referred to as merchant culture—on the ESG disclosure of listed companies in China, using a sample from 2011 to 2021. Merchant culture is measured based on the proximity of a company's registered location to the origins of merchant guilds. Our analysis of the manually collected data reveals a robust positive correlation between merchant culture and ESG disclosure. This positive correlation is particularly pronounced among firms without Big four auditors, in heavily polluted industries, and in regions with weaker legal frameworks. Crucially, merchant culture appears to foster corporate integrity and mitigate the negative impact of social dishonesty environment on ESG disclosure. These findings suggest that, as a social norm, merchant culture can promote integrity and encourage ethical behaviors among companies.