The Power of Colour: Does the Visual Communication of ESG Disclosure Promote Stock Liquidity?

ABSTRACT Visual tools are playing an increasingly important role in corporate disclosure and strategic communication. This study examines standalone ESG reports from Chinese listed firms, employing a novel image colour extraction technique to construct a unique dataset on ESG report visualisation. We find a significant positive relationship between ESG report visualisation level and stock liquidity. Specifically, our empirical analysis shows that a one‐percentage‐point increase in the proportion of colour pixels is associated with a 2.8% improvement in stock liquidity. The impact is more pronounced for state‐owned enterprises, large firms, and those located in less developed regions. Moreover, we explore nonlinear effects and find that excessive use of colour tools leads to diminishing returns, with overly visualised reports negatively affecting stock liquidity. Our findings highlight the importance of colour elements and visual tools in corporate disclosure practices.