The level of sustainability reporting and its impact on firm performance: the moderating role of a country’s sustainability reporting law

Abstract

This thesis aims at investigating the moderating role of country’s sustainability reporting law on the relationship between the level of sustainability reporting and firm performance. To achieve this, two research questions need to be answered. What is the relationship between the level of sustainability reporting and firm performance? And, Is there an effect of country’s sustainability reporting law on the relationship between the level of sustainability reporting and firm performance? To answer these research questions, a positivistic research approach was adopted. A secondary data was used for this study, the data was facilitated the Bloomberg database. The sample includes data from 3,000 firms of 80 countries over 10 years (2008–2017), which provides 23,738 observations. The results show that sustainability reporting disclosure (environmental, social and governance) affects negative a firm's operational performance (ROA). However, when the components of ESG are considered separately it has a positive effect on a firm’s operational performance (ROA). On the other hand, sustainability reporting disclosure (ESG) does not affect a firm’s financial and market performance (ROE and TQ). Moreover, the results show that the inclusion of country’s sustainability reporting law (SRL) as moderator variable affects negatively the relationship between ESG and a firm’s operational performance. However, when the components of ESG are considered separately an SRL has a positive effect on the relationship between E, S and G and firm’s operational performance (ROA). On the other hand, the results show that the inclusion of SRL as moderator variable does not affect the relationship between ESG and a firm’s financial and market performance. This study makes a contribution to the knowledge in the area of sustainability reporting, and how the disclosure of ESG affects the performance of firms. Moreover, how the counrty’s sustainability reporting law affect the relationship between ESG and performance. The results of this study have significant implications for policy makers, regulators and government authorities, as they can recognise the effect of the sustainability reporting law on the relationship between ESG and different performance measures (operational, financial and market).