The Influence of Sustainability Reporting in Enhancing Firm Value
Abstract
There is a growing concern about sustainability reporting as stakeholders increasingly recognize the importance of sustainable and ethical business practices. Investors, consumers, and regulatory bodies are demanding greater transparency and accountability from firms regarding their sustainability and ethical corporate behavior. Accordingly, the objective of this paper is to examine the significant influence that sustainability reporting can exert on a firm's financial performance and overall worth. By employing three predominant theoretical frameworks: stakeholder theory, legitimacy theory, and signaling theory. The findings mostly show that sustainability reporting increases firm value. Reputational capital, investor confidence, and long-term financial performance improve for firms that report their sustainability performance. However, sustainability reporting affects business value through complicated mechanisms that include regulatory contexts, industry characteristics, and disclosure quality. Although positive associations were found, sustainability reporting's effects on firm value need further studies. Research should uncover the mediating variables and contextual elements that promote this association. Researchers can provide more detailed insights into how sustainability reporting might strategically boost firm value, improving corporate sustainability and financial performance. The findings of this study would provide an important contribution to firms and stakeholders. Firms that prioritize sustainability contribute to the well-being of communities and the environment. Further, with greater transparency, the public can hold companies accountable for their actions, and support firms that demonstrate genuine commitment to sustainability.
Downloads
References
Abeysekera, I. (2022). A framework for sustainability reporting. Sustainability Accounting, Management and Policy Journal, 13(6), 1386-1409. DOI: https://doi.org/10.1108/SAMPJ-08-2021-0316
Aksan, I., & Gantyowati, E. (2020). Disclosure on Sustainability Reports, Foreign Board, Foreign Ownership, Indonesia Sustainability Reporting Awards, and Firm Value. JASF: Journal of Accounting and Strategic Finance, 3(1), 33-51. DOI: https://doi.org/10.33005/jasf.v3i1.69
Ali, I., Lodhia, S., & Narayan, A. K. (2021). Value creation attempts via photographs in sustainability reporting: a legitimacy theory perspective. Meditari Accountancy Research, 29(2), 247-263. DOI: https://doi.org/10.1108/MEDAR-02-2020-0722
Ardiana, P. A. (2019). Stakeholder engagement in sustainability reporting: evidence of reputation risk management in large Australian companies. Australian Accounting Review, 29(4), 726-747. DOI: https://doi.org/10.1111/auar.12293
Arena, M., & Azzone, G. (2012). A process?based operational framework for sustainability reporting in SMEs. Journal of Small Business and Enterprise Development, 19(4), 669-686. DOI: https://doi.org/10.1108/14626001211277460
Arora, S., & Gangopadhyay, S. (1995). Toward a theoretical model of voluntary overcompliance. Journal of Economic Behavior & Organization, 28(3), 289-309. DOI: https://doi.org/10.1016/0167-2681(95)00037-2
Asogwa, I. E., Varua, M. E., Humphreys, P., & Datt, R. (2021). Understanding sustainability reporting in non-governmental organizations: A systematic review of reporting practices, drivers, barriers and paths for future research. Sustainability, 13(18), 10184. DOI: https://doi.org/10.3390/su131810184
Bachoo, K., Tan, R., & Wilson, M. (2013). Firm value and the quality of sustainability reporting in Australia. Australian Accounting Review, 23(1), 67-87. DOI: https://doi.org/10.1111/j.1835-2561.2012.00187.x
Ballou, B., Heitger, D., & Landes, C. (2006). The rise of corporate sustainability reporting: A rapidly growing assurance opportunity. Journal of Accountancy, 202(6), 65-74.
Bellringer, A., Ball, A., & Craig, R. (2011). Reasons for sustainability reporting by New Zealand local governments. Sustainability Accounting, Management and Policy Journal, 2(1), 126-138. DOI: https://doi.org/10.1108/20408021111162155
Berthelot, S., Coulmont, M., & Serret, V. (2012). Do investors value sustainability reports? A Canadian study. Corporate Social Responsibility and Environmental Management, 19(6), 355-363. DOI: https://doi.org/10.1002/csr.285
Bhattacharya, C. B., Korschun, D., & Sen, S. (2009). Strengthening stakeholder–firm relationships through mutually beneficial corporate social responsibility initiatives. Journal of Business Ethics, 85, 257-272. DOI: https://doi.org/10.1007/s10551-008-9730-3
Brown-Liburd, H., Cohen, J., & Zamora, V. L. (2018). CSR disclosure items are used as fairness heuristics in the investment decision. Journal of Business Ethics, 152, 275-289. DOI: https://doi.org/10.1007/s10551-016-3307-3
Brown, D. L., Guidry, R. P., & Patten, D. M. (2009). Sustainability reporting and perceptions of corporate reputation: An analysis using fortune. In Sustainability, Environmental Performance and Disclosures, 4, 83-104). DOI: https://doi.org/10.1108/S1479-3598(2010)0000004007
Buallay, A. (2020). Sustainability reporting and firm’s performance: Comparative study between manufacturing and banking sectors. International Journal of Productivity and Performance Management, 69(3), 431-445. DOI: https://doi.org/10.1108/IJPPM-10-2018-0371
Carvalho, N., & Murcia, F. D. R. (2016). The relationship between integrated reporting and cost of capital. Integrated Reporting: A new Accounting Disclosure, 253-268. DOI: https://doi.org/10.1057/978-1-137-55149-8_13
Chen, Y., Jermias, J., & Nazari, J. A. (2021). The effects of reporting frameworks and a firm’s financial position on managers’ willingness to invest in corporate social responsibility projects. Accounting & Finance, 61(2), 3385-3425. DOI: https://doi.org/10.1111/acfi.12706
Cho, C. H., & Patten, D. M. (2007). The role of environmental disclosures as tools of legitimacy: A research note. Accounting, Organizations and Society, 32(7-8), 639-647. DOI: https://doi.org/10.1016/j.aos.2006.09.009
Christensen, H. B., Hail, L., & Leuz, C. (2021). Mandatory CSR and sustainability reporting: Economic analysis and literature review. Review of Accounting Studies, 26(3), 1176-1248. DOI: https://doi.org/10.1007/s11142-021-09609-5
Deegan, C., & Blomquist, C. (2006). Stakeholder influence on corporate reporting: An exploration of the interaction between WWF-Australia and the Australian minerals industry. Accounting, Organizations and Society, 31(4-5), 343-372. DOI: https://doi.org/10.1016/j.aos.2005.04.001
Dihardjo, J. F., & Hersugondo, H. (2023). Exploring the Impact of ESG Disclosure, Dividend Payout Ratio, and Institutional Ownership on Firm Value: a Moderated Analysis of Firm Size. Jurnal Ekonomi Bisnis dan Kewirausahaan, 12(2), 184-207. DOI: https://doi.org/10.26418/jebik.v12i2.64129
Egan, M. (2019). Sense-making resource efficiency through “sustainability” reports. Journal of Business Ethics, 154, 797-812. DOI: https://doi.org/10.1007/s10551-017-3445-2
El-Deeb, M. S., Ismail, T. H., & El Banna, A. A. (2023). Does audit quality moderate the impact of environmental, social and governance disclosure on firm value? Further evidence from Egypt. Journal of Humanities and Applied Social Sciences, 5(4), 293-322. DOI: https://doi.org/10.1108/JHASS-11-2022-0155
Fitriana, S., & Wardhani, R. (2020). The effect of enterprise risk management and sustainability reporting quality on performance: Evidence from Southeast Asia countries. International Journal of Economic Policy in Emerging Economies, 13(4), 344-355. DOI: https://doi.org/10.1504/IJEPEE.2020.109588
Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management Journal, 56(3), 758-781. DOI: https://doi.org/10.5465/amj.2011.0744
Friske, W., Hoelscher, S. A., & Nikolov, A. N. (2023). The impact of voluntary sustainability reporting on firm value: Insights from signaling theory. Journal of the Academy of Marketing Science, 51(2), 372-392. DOI: https://doi.org/10.1007/s11747-022-00879-2
Fuadah, L. L., Mukhtaruddin, M., Andriana, I., & Arisman, A. (2022). The ownership structure, and the environmental, social, and governance (ESG) disclosure, firm value and firm performance: The audit committee as moderating variable. Economies, 10(12), 314-330. DOI: https://doi.org/10.3390/economies10120314
Halid, S., Rahman, R. A., Mahmud, R., Mansor, N., & Wahab, R. A. (2023). A literature review on ESG score and its impact on firm performance. International Journal of Academic Research in Accounting Finance and Management Sciences, 13(1), 272-282. DOI: https://doi.org/10.6007/IJARAFMS/v13-i1/15101
Hogan, J., & Lodhia, S. (2011). Sustainability reporting and reputation risk management: an Australian case study. International Journal of Accounting & Information Management, 19(3), 267-287. DOI: https://doi.org/10.1108/18347641111169269
Kim, J., Kim, M., Im, S., & Choi, D. (2021). Competitiveness of E-Commerce firms through ESG logistics. Sustainability, 13(20), 11548. DOI: https://doi.org/10.3390/su132011548
Kim, S. B., & Kim, D. Y. (2017). Antecedents of corporate reputation in the hotel industry: The moderating role of transparency. Sustainability, 9(6), 951-966. DOI: https://doi.org/10.3390/su9060951
KPMG (2022). ‘Big shifts small steps: Survey of sustainability reporting’, Available at: https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2022/10/ssr-small-steps-big-shifts.pdf
Kuzey, C., & Uyar, A. (2017). Determinants of sustainability reporting and its impact on firm value: Evidence from the emerging market of Turkey. Journal of Cleaner Production, 143, 27-39. DOI: https://doi.org/10.1016/j.jclepro.2016.12.153
Kwon, H. B., & Lee, J. (2019). Exploring the differential impact of environmental sustainability, operational efficiency, and corporate reputation on market valuation in high-tech-oriented firms. International Journal of Production Economics, 211, 1-14. DOI: https://doi.org/10.1016/j.ijpe.2019.01.034
Li, Y., Gong, M., Zhang, X. Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. The British Accounting Review, 50(1), 60-75. DOI: https://doi.org/10.1016/j.bar.2017.09.007
Loh, L., & Tan, S. (2020). Impact of sustainability reporting on brand value: an examination of 100 leading brands in Singapore. Sustainability, 12(18), 7392. DOI: https://doi.org/10.3390/su12187392
Long, B.S., & Driscoll, C. (2008). Codes of ethics and the pursuit of organizational legitimacy: Theoretical and empirical contributions. Journal of Business Ethics, 77, 173–189. DOI: https://doi.org/10.1007/s10551-006-9307-y
Martínez?Ferrero, J., & García?Sánchez, I. M. (2017). Sustainability assurance and cost of capital: Does assurance impact the credibility of corporate social responsibility information? Business Ethics: A European Review, 26(3), 223-239. DOI: https://doi.org/10.1111/beer.12152
Mohammad, W. M. W., & Wasiuzzaman, S. (2021). Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia. Cleaner Environmental Systems, 2, 100015. DOI: https://doi.org/10.1016/j.cesys.2021.100015
Moore, S. B., & Manring, S. L. (2009). Strategy development in small and medium-sized enterprises for sustainability and increased value creation. Journal of Cleaner Production, 17(2), 276-282. DOI: https://doi.org/10.1016/j.jclepro.2008.06.004
Nguyen, D. T. T. (2020). An empirical study on the impact of sustainability reporting on firm value. Journal of Competitiveness 3, 119–135. DOI: https://doi.org/10.7441/joc.2020.03.07
Nigri, G., & Del Baldo, M. (2018). Sustainability reporting and performance measurement systems: How do small and medium-sized benefit corporations manage integration? Sustainability, 10(12), 4499. DOI: https://doi.org/10.3390/su10124499
Nwobu, O. (2015). The relationship between corporate sustainability reporting and profitability and shareholders fund in Nigerian banks. Journal of Accounting and Management, 5(3), 1-12.
Oncioiu, I., Petrescu, A. G., Bîlcan, F. R., Petrescu, M., Popescu, D. M., & Anghel, E. (2020). Corporate sustainability reporting and financial performance. Sustainability, 12(10), 4297. DOI: https://doi.org/10.3390/su12104297
Osazefua, I. J. (2019). Operational efficiency and financial sustainability of listed manufacturing companies in Nigeria. Journal of Accounting and Taxation, 11(1), 17-31. DOI: https://doi.org/10.5897/JAT2018.0329
Peloza, J., & Shang, J. (2011). How can corporate social responsibility activities create value for stakeholders? A systematic review. Journal of the Academy of Marketing Science, 39, 117-135. DOI: https://doi.org/10.1007/s11747-010-0213-6
Permatasari, I., & Narsa, I. M. (2022). Sustainability reporting or integrated reporting: which one is valuable for investors? Journal of Accounting & Organizational Change, 18(5), 666-684. DOI: https://doi.org/10.1108/JAOC-12-2020-0204
Petrescu, A. G., Bilcan, F. R., Petrescu, M., Holban Oncioiu, I., Türke?, M. C., & C?pu?neanu, S. (2020). Assessing the benefits of the sustainability reporting practices in the top Romanian companies. Sustainability, 12(8), 3470. DOI: https://doi.org/10.3390/su12083470
Rabaya, A. J., & Saleh, N. M. (2022). The moderating effect of IR framework adoption on the relationship between environmental, social, and governance (ESG) disclosure and a firm's competitive advantage. Environment, Development and Sustainability, 24(2), 2037-2055. DOI: https://doi.org/10.1007/s10668-021-01519-5
Rokhayati, H., Nahartyo, E., & Haryono, H. (2019). Effect of financial information and corporate social responsibility disclosure on investment decision: Evidence from an experimental study. Asian Journal of Business and Accounting, 12(1), 129-164. DOI: https://doi.org/10.22452/ajba.vol12no1.5
Schreck, P., & Raithel, S. (2018). Corporate social performance, firm size, and organizational visibility: Distinct and joint effects on voluntary sustainability reporting. Business & Society, 57(4), 742-778. DOI: https://doi.org/10.1177/0007650315613120
Shad, M. K., Lai, F. W., Fatt, C. L., Klemeš, J. J., & Bokhari, A. (2019). Integrating sustainability reporting into enterprise risk management and its relationship with business performance: A conceptual framework. Journal of Cleaner Production, 208, 415-425. DOI: https://doi.org/10.1016/j.jclepro.2018.10.120
Shad, M. K., Lai, F. W., Shamim, A., & McShane, M. (2020). The efficacy of sustainability reporting towards cost of debt and equity reduction. Environmental Science and Pollution Research, 27, 22511-22522. DOI: https://doi.org/10.1007/s11356-020-08398-9
So?oducho-Pelc, L., & Sulich, A. (2020). Between sustainable and temporary competitive advantages in the unstable business environment. Sustainability, 12(21), 8832. DOI: https://doi.org/10.3390/su12218832
Staniškien?, E., & Stankevi?i?t?, Ž. (2018). Social sustainability measurement framework: The case of employee perspective in a CSR-committed organization. Journal of Cleaner Production, 188, 708-719. DOI: https://doi.org/10.1016/j.jclepro.2018.03.269
Statista (2024). Sustainability reporting rates of firms worldwide 2011-2022, by region. Statista Research Department. Available at https://www.statista.com/statistics/1338724/sustainability-reporting-rates-worldwide
Stocker, F., de Arruda, M. P., de Mascena, K. M., & Boaventura, J. M. (2020). Stakeholder engagement in sustainability reporting: A classification model. Corporate Social Responsibility and Environmental Management, 27(5), 2071-2080. DOI: https://doi.org/10.1002/csr.1947
Uusi?Rauva, C., & Nurkka, J. (2010). Effective internal environment?related communication: An employee perspective. Corporate Communications: An International Journal, 15(3), 299-314. DOI: https://doi.org/10.1108/13563281011068140
Uyar, A. (2016). Evolution of corporate reporting and emerging trends. Journal of Corporate Accounting & Finance, 27(4), 27-30. DOI: https://doi.org/10.1002/jcaf.22157
Van Der Waal, J. W., Thijssens, T., & Maas, K. (2021). The innovative contribution of multinational enterprises to the Sustainable Development Goals. Journal of Cleaner Production, 285, 125319. DOI: https://doi.org/10.1016/j.jclepro.2020.125319
Van Linh, N., Hung, D. N., & Binh, T. Q. (2022). Relationship between sustainability reporting and firm’s value: Evidence from Vietnam. Cogent Business & Management, 9(1), 2082014. DOI: https://doi.org/10.1080/23311975.2022.2082014
Copyright (c) 2024 HOD AMIN, MOHD HALIM KADRI, RAJA ADZRIN RAJA AHMAD
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
