Regulatory Spillovers, Supply-Chain Networks, and the Valuation Relevance of ESG Risk

Recent sustainability regulations extend firms’ sustainability risk responsibilities beyond their internal operations, embedding risk within supply-chain relationships. To investigate this, the study employs a panel of publicly listed firms from emerging markets over the period 2015 to 2024. The analysis employs network-informed econometric specifications and exploits regulatory tightening as a quasi-exogenous source of variation transmitted through pre-existing supply-chain links to examine how supply-chain positioning influences the valuation-relevance of sustainability risk. The results show that firms occupying central or brokerage positions within production networks exhibit higher ESG exposure materiality and heightened valuation sensitivity following regulatory intervention, suggesting that investors incorporate indirect, network-based sustainability risks into firm value. These findings contribute to accounting research by showing that sustainability regulation extends the effective informational boundary of the firm, with implications for sustainability reporting, risk assessment, and value-chain accountability. Complementary machine-learning analyses are applied exclusively for out-of-sample predictive validation and do not inform causal inference. JEL Classification: M41; G14; G32; Q56.