Integrated Reporting and Assurance of Sustainability Information: An Experimental Study on Professional Investors’ Information Processing

Sustainability-related non-financial information is increasingly deemed value relevant. Against this background, two recent trends in non-financial reporting are frequently discussed: integrated reporting and assurance of sustainability information. Using an established framework of information acquisition, evaluation, and weighting, this experimental study investigated how the choice of reporting format interacts with the voluntary assurance of sustainability information. The results from a sample of professional investors underline the important role of assurance in the context of voluntary disclosure and illustrate the relevant interaction with the reporting format. Assurance of sustainability information positively affected professional investors’ evaluation of a firm’s sustainability performance, resulted in a higher weighting of this information, and led to higher investment-related judgments. However, this assurance effect was weaker in the case of integrated reporting compared to separate reporting. We attribute this effect to a cognitive bias in decision-making when assured financial performance and non-assured sustainability performance are presented in the same report.     

Determinants of the adoption of sustainability assurance statements: an international investigation

This paper explores the factors associated with voluntary decisions to assure social, environmental and sustainability reports. Since the market for assurance services in this area is in its formative stages, there is a limited understanding of the demand for this emergent non‐financial auditing practice, which is evolving rapidly across different countries. Drawing from extant literature in international auditing and environmental accounting, we focus on a set of country‐level institutional factors to explain the adoption of sustainability assurance statements among an international panel of 212 Fortune Global 250 companies for the years 1999, 2002 and 2005. Consistent with our expectations, our results provide evidence that companies operating in countries that are more stakeholder oriented and have a weaker governance enforcement regime are more likely to adopt a sustainability assurance statement. Further, the demand for assurance is higher in countries where sustainable corporate practices are better enabled by market and institutional mechanisms. Our exploratory findings also indicate that the likelihood of choosing a large accounting firm as assurance provider increases for companies domiciled in countries that are shareholder oriented and have a lower level of litigation. We conclude the paper by suggesting three directions of research in the area of sustainability assurance that have relevant academic and practical implications. Copyright © 2008 John Wiley & Sons, Ltd and ERP Environment.     

Integrated thinking and sustainability reporting assurance: International evidence

Recently, there has been increasing demand by stakeholders for firms to demonstrate how they create value within the context of their operating environment. Consequently, a new reporting approach, integrated reporting (IR), was conceptualised with its development linked to the firm's integrated thinking (IT). Yet very little is known about the effects of IT on firms' reporting decisions. Hence, we investigate whether IT influences firms' decision to publish an assured sustainability report. Using an international dataset, we find that IT is positively associated with sustainability reporting assurance. We also find that this association is moderated by the type of legal system such that for firms in code law countries, the IT effects are reduced. Nevertheless, the effects of IT remain strong, indicating that IT is important for reporting decisions regardless of the firm's contextual setting. These findings have implications for policymakers and organisations interested in promoting high-quality sustainability reporting.     

Sustainability Development and the Quality of Assurance Reports: Empirical Evidence

There is a rising trend among companies to publish their sustainability or corporate social responsibility (CSR) reports. Assurance of these reports is a valuable voluntary tool to provide them with higher credibility. Nonetheless, the quality of assurance reports differs in practice and the objective of this paper is to provide evidence in this new area of research. Indeed, we are pioneers in developing an index to measure the quality of assurance reports. We choose the Spanish setting because it is the worldwide leading country as regards CSR reporting (KPMG, 2011; Sierra et al., 2012). We have found evidence on the determinants for CSR reporting posited by existing literature that have an impact on (a) the decision of companies to publish their CSR reports, (b) the decision to assure the CSR report or not and (c) the decision to hire the assurance services from an auditor or a consultant and the subsequent quality of the assurance report. Last but not least, our results from a sample of 161 CSR assurance reports evidence that assurance reports are of fairly acceptable quality, according to the index proposed. Furthermore, the value of the quality index is significantly higher if the assurance services are provided by an auditor (as opposed to a consultant) and if the CSR reporting company is larger. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.     

Stakeholder engagement is evolving: Do investors play a main role?

Stakeholder engagement, an essential component of the sustainability reporting strategy, is changing, as is the position of the different stakeholders in this evolving scenario. In this paper, we explore the effect of the pressure that a specific group of stakeholders, investors, exerts on the quality of the sustainability information disclosed. We intend to analyze if there has been a change in the role that investors play in sustainability reporting. By focusing on investors, we are paying attention to one of the less studied groups within the sustainability stakeholders. To this aim, we carry out a content analysis of the sustainability information disclosed by U.S. (shareholder-oriented country) and Spanish (stakeholder-oriented country) listed companies during the years 2013 to 2016. Our findings confirm the key role that investors play in the companies' sustainability strategies, demanding more and better sustainability information. We also find a reduction in the quality of sustainability disclosures in Spanish companies in the last year of our sample, showing a relevant change in this country that has been leading the sustainability rankings until now. The results of this paper are useful to investors and companies, as they reflect the changes on the information they demand, and for regulators, in order to create the adequate legal framework that will improve the quality of reporting. Regulators and financial agents should acknowledge this new scenario to adapt norms and actions accordingly.     

Can sustainability report assurance be a collaborative process and practice beyond the ritual of verification?

This study examines the role of assurance for sustainability reporting whether it has the role beyond a verification mechanism for corporate sustainability reporting. This paper looks beyond the discourse about managerial and professional capture in sustainability report assurance practice. Drawing on the in-depth interviews with assurance practitioners for sustainability reporting in the United Kingdom from different professional backgrounds, it provides an evidence-based illustration on how sustainability report assurance service can contribute to more corporate sustainable actions. The findings also highlight the potential influences of the assurance providers on the assurance process and corporate decision-making. The conceptualization of the assurance from the service perspective and of the assurance providers as transformational leaders enables this paper to challenge the current framing of the assurance services as a verification ritual that constraint its impacts and contributions to sustainable development.     

法律制度、会计标准与投资者保护——英美法系国家与大陆法系国家的比较

法律制度与会计标准相互协调的制度安排,对加强投资者保护是有利的。英美法系国家会计标准采用文字描述的会计准则形式,大陆法系国家会计标准采用条文规定的会计制度形式,符合这些国家投资者利益。但由于成文法对投资者保护的先天不足,大陆法系国家首先要完善立法、严格执法、加强监管,然后才能逐步实施与国际会计准则的接轨。     

Investor protection,hedge fund leverage and valuation

Weak investor protection inevitably causes concentrated insider equity ownership, economic decision distortion and resource misallocation (Shleifer and Vishny, 1993). Our paper focuses on theoretical hedge fund valuation and dynamic leverage choice by incorporating the consideration of weak investor protection. The weak investor protection effect on dynamic leverage choice is ambiguous, as it depends on the managers’ moneyness ratio, which will certainly have a negative effect on the hedge fund investors’ payoff. Thus, managers should take more ownership and engage in short volatility strategies in weak investor protection to secure their total payoff.Weak investor protection also significantly increases the hedge fund founding break-even alpha.     

Can sustainable investments outperform traditional benchmarks? Evidence from global stock markets

To contribute to overcoming global sustainability challenges, investors have been increasingly interested in making sustainable investments and incorporating environmental, social and governance (ESG) criteria into their portfolio selection decisions and managerial activities. However, these investors and other agents interested in sustainable investment need updated and robust information to support their decision making. We analyzed the performance of several Dow Jones Sustainability Indices (DJSIs) and compared them with their respective market benchmarks from 2013 to 2018. The indices comprise the following regions and countries: the world, the Asia‐Pacific, Europe, emerging markets and the US. The analysis was conducted based on both classic and modern portfolio metrics. The results suggest that sustainable investment performance is still heterogeneous worldwide, but there is a promising opportunity for investors to obtain superior risk‐adjusted returns in certain regions while incorporating sustainable investment practices. The findings are of utmost importance to financial market practitioners, business managers, academics and other stakeholders interested in promoting investments, corporate practices and scientific knowledge to achieve the Sustainable Development Goals (SDGs).     

DOES INVESTOR PROTECTION INCREASE FOREIGN DIRECT INVESTMENT? A META‐ANALYSIS

We undertake a meta‐analysis of the effects of international investment agreements for the protection of foreign investors on foreign direct investment using 2107 estimates drawn from 74 studies. Our meta‐analysis finds robust evidence that effect of international investment agreements is so small as to be considered zero.  However, our results do not rule out the possibility that the effect of these agreements is, in fact, positive and that current research methods are insufficiently powerful or precise to identify the underlying genuine effect. FDI from developed countries appears to be more responsive to the existence of investment protection, and there is evidence of publication–selection bias in favour of studies that find a positive effect for investor protection.     

Exploring the firm and country determinants of the voluntary adoption of integrated reporting

Information used to manage the business and support the decision‐making of stakeholders is being subject to an evolution. In this context, traditional financial reporting is considered not sufficient anymore. This has translated into a sharp increase in the number of firms that have begun to adopt emerging reporting practices. This study aims to examine the influence that both firm‐ and country‐specific characteristics have on the voluntary uptaking of integrated reporting internationally. In order to do so, it analyses a sample of 71 international listed companies that have adopted this reporting form in 2016. The results show that firms are more likely to implement integrated reporting if they are located in countries with a higher level of corruption perception and a better risk rating and that are considered as relatively more collectivist and feminist and with a long‐term orientation. Legal system has resulted to be not significant. As for firms' characteristics, large size, profitability, market‐to‐book ratio, and the size of the board are found to be significant variables. Moreover, the results indicate that the adoption of integrated reporting is not influenced by a higher level of leverage, firm efficiency and board diversity and independence.     

Sustainability reporting in Norway – an assessment of performance in the context of legal demands and socio‐political drivers

This article explores the influence of societal, political and regulatory characteristics and developments on the quality of corporate sustainability disclosures in Norway. The paper presents an assessment both of mandatory reporting under the Norwegian Accounting Act, and of voluntary reporting in annual and separate non‐financial reports, by the 100 largest firms in Norway. Our results reveal that only 10% of the companies comply with the legal requirements on environmental reporting, while only half of the firms comply with the legal reporting provisions on working environment and gender equality. The vast majority of firms also report unsatisfactorily on non‐financial issues in the voluntary disclosures assessed. Analysing the causes of these results, we contend that the situation is characterized by (1) an apparent lack of political and social drivers for sustainability reporting in Norway and (2) an absence of sufficient monitoring and enforcement of the environmental reporting legislation on the part of Norwegian authorities. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.     

Focus and Standardization of Sustainability Reporting – A Comparative Study of the United Kingdom and Finland

Sustainability reporting has attracted significant attention from the business as well as the academic community in recent years. Not only has the latter frequently made recommendations on reporting, it has also extensively examined factors that have an influence on reporting. Several studies have noted differences in the extent and style of reporting across countries, but the influence of specific cultural and socio‐economic environments on reporting has only been given limited consideration so far. It is the goal of this paper to help fill this gap. For this purpose, we examine the sustainability reporting of the 100 largest companies in the United Kingdom and Finland, as both are highly developed countries in North‐Western Europe, but with significantly different cultural and socio‐economic systems. Aside from the extent of reporting and media used, we examine the reporting standards and guidelines applied. Moreover, the focus of disclosure (economic, social or environmental) was investigated, which also brings a new perspective to the academic literature. Our results suggest that the cultural and socio‐economic environment has an impact on the extent of reporting, but with regard to the focus of reporting and the application of standards the results are mixed. A stronger shareholder oriented culture does not lead to a more extensive inclusion of economic issues in sustainability reporting, while the extent of environmental reporting depends on the strength of environmentalism. The impact of cultural and socio‐economic factors on the application of standards, such as the Global Reporting Initiative, appears to be limited. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.     

Auditor Industry Specialization,Political Economy and Earnings Quality: Some Cross‐Country Evidence

Using cross‐country data, we evaluate the impact of investor protection on the association between earnings quality and audits by industry specialists. Our findings show that the positive association between industry specialist auditors and earnings quality as documented in the literature is affected by the political electoral system, which reflects investor protection rights in a country. We document that audits by industry specialists are associated with higher earnings quality in countries with the proportional electoral system, reflecting weak investor protection. Our results also confirm Kwon et al.'s findings that overall there is a positive association between earnings quality and audits by industry specialists in countries with weak legal enforcement. Our findings, however, indicate that Kwon et al.'s results are valid only for countries with weak investor protection reflected by the proportional electoral system and not for countries with strong investor protection reflected by the majoritarian electoral system. These findings thus suggest that higher earnings quality of firms audited by industry specialists across countries can especially be expected when investor protection is low and legal enforcement is also weak. In addition, our research suggests that future cross‐country studies could explicitly consider the role of the political electoral system of a country in evaluating corporate governance, management and accounting issues.     

The Effects of Negative Incidents in Sustainability Reporting on Investors’ Judgments–an Experimental Study of Third‐party Versus Self‐disclosure in the Realm of Sustainable Development

This study examines how the disclosure of negative sustainability‐related incidents affects the investment‐related judgments of decision‐makers. Participants in a sequential 2 × 2 between‐subjects experiment first received a company's financial information before viewing additional sustainability information (by the company and by a non‐governmental organization (NGO); with and without negative disclosure). Results indicate that self‐reporting of negative incidents does not affect decision‐makers’ stock price estimates and investment decisions compared with judgments based on financial information only. However, third‐party disclosure of these incidents by a NGO has a negative affect on these investment‐related judgments. Furthermore, the magnitude of the NGO reporting effect depends on whether the company itself simultaneously reports these incidents. Thus, disclosing negative incidents in sustainability reporting could lose some of its apparent stigma. Instead of avoiding negative reporting altogether, managers might use it as a risk mitigation tool in their reporting strategy. The results also emphasize the power of the often‐mentioned ‘watchdog’ function of NGOs acting as stakeholder advocates. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment     

Voluntary sustainability assurance in small and medium-sized entities: The role of country origin in Europe

The assurance of sustainability information by small and medium-sized entities (SMEs) has not attracted much research interest to date. To rectify this, we draw on a sample of European firms (from the EU, the United Kingdom and Norway) extracted from the Global Reporting Initiative (GRI) database and explore the disclosure variable in relation to country-specific factors. Assurance rates are found to be low among SMEs, and moreover, the level of disclosure is limited. The assurance market is dominated by accounting firms, above all by the Big Four. Legal origin is found to be a highly relevant factor, with Scandinavian countries presenting the highest percentage rates of sustainability report assurance. Among the cultural variables analysed, power distance, masculinity and uncertainty avoidance have a significant negative impact on the decision to assure sustainability information. Overall, the study serves to enhance understanding of SME practices in different countries of origin.     

Determinants of Traditional Sustainability Reporting Versus Integrated Reporting. An Institutionalist Approach

The aim of this study is to analyze similarities and differences between companies with traditional sustainability reporting (TSR) and those that publish integrated reports. Based on institutional theory we identify potential determinants of integrated reporting (IR) and test their relevance empirically in a sample of 309 companies. Our analysis shows that IR companies are different from TSR companies with regard to several country‐level determinants. In particular, investor and employment protection laws, the intensity of market coordination and ownership concentration, the level of economic, environmental and social development, the degree of national corporate responsibility and the value system of the country of origin proved to be relevant. Based on these results, both implications for practice and future studies are derived. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.     

Optimal consumption choice with intolerance for declining standard of living

We reconsider the optimal consumption choice of investors who do not tolerate any decline in their consumption rate. We connect the demand behavior of such agents to the behavior of standard time-additive agents. With consumption ratcheting, the investor demands the running maximum of the optimal plan a conventional time-additive investor with lower initial wealth would choose. The analysis is carried out for Lévy processes, in particular for jump-diffusions. We obtain explicit solutions for all Bernoulli utility functions, not only those of CRRA type.     

Examining the extent of and determinants for sustainability assurance quality: The role of audit committees

This study examines the extent of and determinants for sustainability assurance quality. Data comprise sustainability assurance statements published by the top 100 listed companies in Australia and New Zealand from 2017 to 2019. The findings indicate that Australian companies lead their New Zealand counterparts in sustainability assurance. Although sustainability reporting has risen, assurance rates remain significantly low. Accountants dominate the market, and companies prefer to use their own auditors for sustainability assurance work. Sustainability assurance quality is poor and does not vary significantly among Australian and New Zealand companies. Low-quality sustainability assurance plays a limited role in mitigating potential stakeholder–agency conflicts. The regression analysis indicates that audit committee characteristics such as members' independence, industry/market expertise, and attending meetings enhance sustainability assurance quality, whereas audit committee size has no affect. These findings suggest that audit committee characteristics such as independence, industry expertise, and regular meeting attendance have the potential to reduce stakeholder–agency conflicts by improving the quality of sustainability statement assurance. Our findings build on the sustainability assurance literature by exploring current trends in sustainability assurance practices in Australia and New Zealand where corporate governance codes have been recently revised. Further, these findings are timely given recent changes in standards (International Standard on Assurance Engagements [ISAE] 3000 and Global Reporting Initiative [GRI]). Our study contributes to the audit committee literature and sheds light on the role played by audit committee characteristics on sustainability assurance statement quality. The study findings potentially offer useful insights for practitioners, standard setters, and regulators.     

The Association of Board Independence and Ownership Concentration with Voluntary Disclosure: A Meta-analysis

In this paper we apply meta-analysis to a sample of 27 empirical studies to clarify the association of board independence and ownership concentration with voluntary disclosure. We examine whether variations in results are attributable to the differences in the corporate governance system, the investor protection rights and the measurement of the governance variables. The findings show that the positive association between board independence and voluntary disclosure only occurs in those countries with high investor protection rights. The findings emphasize the need to consider the legal and institutional setting explicitly when analysing the effect of corporate governance on voluntary disclosure.