We examine how natural disasters affect the corporate environmental, social, and governance (ESG) disclosure policies of firms located close to disaster areas. We study firms located in counties neighboring those impacted by natural disasters and find that, on average, these firms increase their ESG disclosure transparency over the period subsequent to the disaster. Given that our sample firms are located outside of the area directly impacted by the disaster, the changes in disclosure transparency after the disaster are consistent with managers increasing their preference for transparency as their risk salience increases. Further, we find that firms with a higher percentage of local institutional ownership are more likely to increase ESG disclosure after experiencing nearby disasters. The findings suggest that managers strategically react to a change in investors' risk perception by increasing ESG disclosure.

We show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties but find no evidence that these investments earn a differential return. Firms in regions with stronger social ties to locations with many institutional investors have higher valuations and liquidity. These effects are largest for small firms with little analyst coverage, suggesting that the investors’ behavior is explained by their increased awareness of firms in socially proximate locations. Our results highlight that the social structure of regions affects firms’ access to capital and contributes to geographic differences in economic outcomes.