ESG disclosure and firm performance before and after IR

Abstract

Purpose This paper aims to investigate the effect of environmental, social and governance disclosure (ESGD) on firm performance (FP) before and after the introduction of integrated reporting (IR) further to exploring a potential moderation effect of corporate governance mechanisms on this relationship. Design/methodology/approach Ordinary least squares and firm-fixed effects models were estimated based on data related to FTSE 350 between 2009 and 2018. The data has been mainly collected from Bloomberg and Capital IQ. This analysis was supplemented with applying a two-stage least squares (2 SLS) model to address any concerns regarding the expected occurrence of endogeneity problems. Findings The results show a positive and significant relationship between ESGD score and FP before and after 2013, among a sample of FTSE 350. Furthermore, the study is suggestive of a moderation effect of corporate governance mechanisms (i.e. ownership concentration, gender diversity and board size) on the ESGD-FP nexus. Additionally, this paper finds that firms voluntarily associated with IR have a tendency to achieve better firm financial performance. Practical implications The findings of the present study have several policy and practitioner implications. For example, managers may engage in ESGD to enhance their firms’ financial performance by the voluntary involvement in IR, which believed to help investors to rationalise their investment decisions. Likewise, the results reiterate the crucial need to integrate more social, environmental and economic regulations to promote sustainability in the UK. The paper also offers a systematic picture for policymakers in the UK as well as future researchers. Social implications The findings of this paper indicate that IR plays a significant role in the relationship between ESGD and FP, where IR firms seemed to be achieving better FP as compared with their non-IR counterparts. This implies that stakeholders may have played a magnificent effort to encourage firms’ voluntary engagement in IR in the UK. Originality/value To the best of the authors’ knowledge, this is the first study to explore the potential moderating effect of ownership concentration, gender diversity and board size on the relationship between ESGD and FP and to examine whether firms’ voluntary involvement in IR can lead to better FP after the introduction of IR in 2013 in the UK.

Archival research on integrated reporting: a systematic review of main drivers and the impact of integrated reporting on firm value

“…Here we have emphasised the results of studies on IR variables that moderate other non-IR-links. Albitar and Hussainey (2020) found the positive link between CSR reporting and financial performance to be moderated by IR adoption. IR adoption also moderates the positive relationship between CSR performance and the market value of equity (Loprevite et al, 2018).…”

Understanding the Impact of ESG Practices in Corporate Finance

“…To make a generalized conclusion about the relationship between ESG and corporate finance, they aggregated the test results of empirical studies over four decades while understanding the impact of ESG investing in global capital markets. The research in this area is extensive, accelerating, and still inconclusive depending on data sample, sample period, empirical methods, and different industries or countries (e.g., [8][9][10][11][12]). Among these 2200 studies, approximately 90% of them indicate non-negative relationships between ESG and financial performance variables, while most report the positive impact of ESG factors on corporate financial performance.…”

Do Corporate Environmental Sustainability Practices Influence Firm Value? The Role of Independent Directors: Evidence from Saudi Arabia

“…Following previous studies [79][80][81], some firm characteristics are employed as control variables that are suggested to affect firm value. Particularly, firm size (calculated as the logarithm of the firm's total assets) [10,50,55], firm market capitalization (computed as the total riyal market value of a firm's outstanding shares) [82], firm debt (the total debt to total assets ratio) [10,50,55], and firm risk (beta, calculated as the volatility of the stock price compared to the market index volatility) [10].…”