Impact of ESG regulation on stock market returns: Investor responses to a reasonable assurance mandate

How do stocks respond to environmental, social, and governance (ESG) regulatory interventions, and in what way do ESG reputations influence the magnitude of such responses? Through an event study approach, we investigate how establishing a mandate for "reasonable assurance" on ESG metrics affected market and firm-level returns in India. Findings reveal persistent negative post-event cumulative abnormal market returns declining to -1.20% during the [+1,+5] window. The imposition of the reasonable assurance mandate depressed the market. However, consistent with a reservoir of goodwill hypothesis, ESG scores positively shielded firm-level investor reactions, with the governance component of ESG being the most influential.