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Abstract
Engaging in sustainability activities and their disclosures are common in the recent business setting around the globe. It is therefore vital to explore the consequences of sustainability disclosure. Consequently, the aim of this paper was to discover whether corporate sustainability disclosure has a potential impact on the market value in a developing country. The data was collected from 220 companies listed in the Colombo Stock Exchange (CSE) in Sri Lanka over a period of four years. Regression analysis was executed on the panel data to achieve the study objective. The results revealed a positive relationship between sustainability reporting (SR) and firm market value, accepting the value-enhancing theory. This finding suggests that investors pay a premium in the capital markets for firms that perform in an environmentally and socially responsible manner, compared to firms do not perform in a similar manner. This study contributes significantly to the extant literature by broadening the geographical context, which generally has been excluded from corporate disclosure studies.
Key words: corporate sustainability reporting, firm value, panel data, Tobin's Q, value-enhancing theory
Introduction
Scholars use corporate social responsibility (CSR) and sustainability (and reporting) as interchangeable concepts (Montiel, 2008). The core underlying reason for SR is to convey to the public both the transparency and accountability of the firm in the conduct of its affairs (Godha & Jain, 2015). Engaging in sustainability activities can be a costly exercise for a firm (Bhatia & Tuli, 2015). Even though sustainability information disclosure may prove costly to a firm in the short-run, it provides many benefits over the long-run. By engaging in CSR activities, a firm enjoys a set of direct and indirect benefits. A firm benefits directly in the shape of cost and risk reduction, while indirectly in the way of competitive advantages. In a wider sense, firms turn out to be more attractive to investors by exhibiting CSR (Carroll & Shabana, 2010). Further, there is evidence that SR improves internal processes, engages stakeholders and persuades investors, all of which contribute to enhance shareholders' value in different ways (Godha & Jain, 2015).
Firms eventually tend to disclose sustainability information voluntarily. Firms do this due to two reasons (De Villiers & Marques, 2016). The first reason is to conform to social expectations and thereby...