The Interplay Between ESG Disclosures and Individual Investors’ Behaviors: Do Affective and Cognitive Reputation Matter?

Abstract

Sustainable Responsible Investment (SRI) emphasizes the integration of Environmental, Social, and Governance (ESG) factors into investment decisions. This study examines the relationship between ESG disclosures and individual investors’ trading behaviors, with corporate reputation as a mediating construct within the framework of signaling theory. Extending signaling theory, the study incorporates both cognitive and affective dimensions of corporate reputation to explain how ESG signals are interpreted by investors in emerging markets. Primary data were collected in 2025 from 390 individual investors in the Pakistan Stock Exchange (PSX), and Structural Equation Modeling (SEM) was used for analysis. The findings reveal that environmental and governance disclosures have a significant positive impact on investors’ behaviors, while social disclosures show a limited direct effect on both cognitive and affective corporate reputation dimensions. The results further indicate that corporate reputation significantly mediates the relationship between environmental and governance disclosures and investors’ behaviors. However, no mediation effect is observed for social disclosures. The study demonstrates that both cognitive (rational evaluation) and affective (emotional trust) dimensions of corporate reputation enhance the credibility of ESG signals and strengthen their influence on investment decisions. Overall, the study contributes to the ESG and signaling theory literature by highlighting how dual-dimensional corporate reputation shapes investors’ responses to ESG disclosures in emerging markets such as Pakistan.