Peer Effects in ESG Disclosure Under Digital Innovation and Financial Constraints: Implications for Sustainable Development in China

ABSTRACT We explore how peer firms' ESG disclosure practices influence the disclosure strategies of target firms within a dynamic signaling framework. Drawing on data from Chinese listed companies, we integrate Bloomberg's ESG scores with a text‐analysis‐based disclosure index derived from ESG, CSR, and annual reports. Our findings reveal notable peer effects shaped by both industry and regional interactions, with executive green cognition acting as a key mediating mechanism. Digital transformation strengthens firms' capacity to respond effectively to peer signals, while financial constraints heighten the tendency to imitate others. These effects are particularly evident among firms in polluting industries, where competitive and imitative pressures are more intense. Interestingly, no significant differences emerge between state‐owned and private firms. Moreover, we uncover an inverted U‐shaped relationship between peer disclosure intensity and greenwashing tendencies: moderate levels of peer disclosure encourage symbolic strategies, whereas higher levels foster more authentic disclosure. Overall, this study highlights the dynamic interplay between group behaviors, executive cognition, and contextual constraints in shaping ESG disclosure. By linking peer‐driven disclosure dynamics to the credibility of sustainability‐related communication, our findings provide important insights into how corporate behavior can either support or hinder broader sustainable development objectives.