Single vs. Double Materiality in Nonfinancial Disclosure: A Methodological Framework for Measuring Equity Market Reactions

Abstract

This thesis proposes a methodological framework to assess how the scope of materiality in mandated nonfinancial disclosures influences equity market reactions, using stock liquidity as a behavioral proxy. How the difference in information set due to different materiality frameworks - single materiality or double materiality- affects investor behavior has become increasingly important as global sustainability reporting standards evolve. Grounded in Targeted Transparency Action Cycle and supported by information asymmetry theory, reputation theory, and stakeholder theory, the thesis presents two research propositions: that double materiality disclosures improve stock liquidity more than single materiality, and that this effect is stronger for firms with high pre-existing ESG performance. The study proposes panel fixed effects and difference-in-differences empirical models incorporating ESG interaction terms and multiple stock liquidity proxies to test the propositions. By offering a conceptual framework and an empirical research design toolkit, this study provides regulators, investors, and researchers with a new foundation to empirically evaluate the effectiveness of nonfinancial disclosures as comprehensive data becomes available.