Do investors value the voluntary assurance of sustainability information? Evidence from the Spanish stock market

Abstract

This study examines in the Spanish setting whether, after the passing of the European Directive 2014/95/UE, investors value positively the voluntary assurance of sustainability reports corresponding to the period 2014-2017 for a sample of listed companies. It also analyzes the valuation by investors of a series of assurance characteristics such as its quality, level of application (reasonable/high vs. moderate/ limited), scope (complete vs. partial), and the type of assurance provider (accounting vs. non-accounting firms). Our results find that investors reward firms that adopt external sustainability assurance. Furthermore, we document that investors value to a greater extent those assurance statements with a broader scope, a high/reasonable level of assurance, and with a better quality. Our results are relevant for companies, investors, regulators, and practitioners, and justify the pertinence of the recent Law 11/2018 that places Spain as a European reference by requiring a mandatory assurance of sustainability information in order to increase its reliability and comparability.

The value relevance of sustainability reporting: does assurance and the type of assurer matter?

“…Following a careful review of literature, (Cheng, 2008; Kaspereit and Lopatta, 2016; Gupta et al , 2017; Jenwittayroje and Jiraporn, 2017; Reverte, 2020), the potential effect of a company’s board and other firm fundamentals on firm value are controlled for in the study. For instance, board independence (BoDIND), measured as the ratio of independent directors to board size, is included in the model.…”

“…The ratio of total debt to total asset controls for leverage (LEV), a reflection of a company’s indebtedness. Companies with high leverage levels may be less attractive to investors, which will inversely affect the firm’s value (Kaspereit and Lopatta, 2016; Reverte, 2020). The log of total assets is used to control for firm size (SIZE).…”

“…For instance, whereas Reverte (2020) found evidence in support Value relevance of sustainability reporting of a positive relationship between sustainability assurance and firm value, the studies of Cho et al (2014) and Fazzini and Dal Maso (2016) found no incremental value for the assurance of CSR disclosure. Similarly, while Reverte (2020) report that investors value the quality of CSR assurance, García-S anchez et al (2022) found that the quality of assurance is not well valued by the stock market. On this, prior studies (Simnett et al, 2009;Kolk and Perego, 2010) have acknowledged that the value relevance of assurance is country-specific and influenced by the national context in which companies operate.…”

“…Again, even the scanty evidence remains inconsistent (Maroun, 2020). For instance, whereas Reverte (2020) found evidence in support Value relevance of sustainability reporting of a positive relationship between sustainability assurance and firm value, the studies of Cho et al (2014) and Fazzini and Dal Maso (2016) found no incremental value for the assurance of CSR disclosure. Similarly, while Reverte (2020) report that investors value the quality of CSR assurance, García-S anchez et al (2022) found that the quality of assurance is not well valued by the stock market.…”

“…Given that sustainability assurance is largely a voluntary venture, which imposes a huge financial burden on firms, it provides an appropriate setting to examine its relevance for firm information users and firm value creation. While some studies have been done in this regard (Fazzini and Dal Maso, 2016; Clarkson et al , 2019; García-Sánchez et al , 2019; Radhouane et al , 2020; Reverte, 2020), the empirical evidence remains scanty, and the focus has mainly been on developed economies. Again, even the scanty evidence remains inconsistent (Maroun, 2020).…”