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Between cost and value: Investigating the effects of sustainability reporting on a firm’s performance

Amina Buallay (Brunel University, London, UK) (Ahlia University, Manama, Bahrain)

Journal of Applied Accounting Research

ISSN: 0967-5426

Article publication date: 3 June 2019

Issue publication date: 22 November 2019

4733

Abstract

Purpose

There are wide debates about the costs and benefits of sustainability reporting. The purpose of this paper is to investigate the relationship between sustainability reporting and a firm’s financial, operational and market performance in order to determine when sustainability reporting benefits a firm and when it adds cost.

Design/methodology/approach

This study examined 342 financial institutions within the 20 countries that top the list of achievers of sustainable development goals for the 10 years 2007 through 2016, for a total of 3,420 observations. The independent variable is the environmental, social and governance (ESG) score; the dependent variables are performance indicators (return on assets, return on equity and Tobin’s Q). Two types of control variables are used in this study: firm level and country level.

Findings

The findings deduced from the empirical results demonstrate that, on the one hand, ESG positively affects market performance, which supports value creation theory. On the other hand, ESG negatively affects financial and operational performance, which supports cost-of-capital reduction theory.

Research limitations/implications

This study aims to find how sustainable disclosure can and does play a role in contributing towards performance of financial institutions to eventually achieve country’s sustainable development goals.

Practical implications

The study provides insights into the effect of sustainability reporting on different perspectives of business performance, which might be utilised by financial institutions to re-arrange their disclosure policy to be aligned with their strategy.

Originality/value

This study sheds light on the rare prior studies that relate sustainability reporting to indicators of business performance (operational, financial and market).

Keywords

Citation

Buallay, A. (2019), "Between cost and value: Investigating the effects of sustainability reporting on a firm’s performance", Journal of Applied Accounting Research, Vol. 20 No. 4, pp. 481-496. https://doi.org/10.1108/JAAR-12-2017-0137

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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