Sustainability reports in Brazil through the lens of signaling, legitimacy and stakeholder theories

Abstract

Purpose The purpose of this paper is to extend the applicability of stakeholder, legitimacy and signaling theories by examining to what extent proactive corporate social responsibility disclosures are interrelated to attempt to gain and maintain legitimacy, to gain support of the stakeholders and to reduce information asymmetry. Design/methodology/approach To test the theoretical arguments, a longitudinal approach over a five-year period of 145 companies’ sustainability reports and statistical analysis was applied to investigate the evolution of their quality. Findings The results show a significant increase in the quality of sustainability reporting, and the experience gained while writing these reports can contribute to this. Based on signaling and legitimacy theories, this paper suggests that improvement in sustainability reporting quality acts as an important signal to gain legitimacy in case of information asymmetry during the legitimacy process. Th disclosure for economic and social dimensions is better than that of the environmental dimension, and the improvement in quality over time is the because of synergies and interlinkages more between these two dimensions of sustainability, and to a lesser extent because of the environmental dimension. Practical implications Firms should view investing in sustainability reporting disclosure as a strategy for obtaining business legitimacy. Originality/value The results of this paper are of interest for several reasons: extend and broaden the use of signaling in studying its use on sustainability reporting; the use of three theories is an appropriate framework for empirical analysis of sustainability reporting disclosure quality in Brazil; and add to the scarce evidence of sustainability reporting in Brazil.

A Cross-Country Investigation of Corporate Governance and Corporate Sustainability Disclosure: A Signaling Theory Perspective

“…The organization's strategic decisions send signals to the market about commitment and initiatives that affect reputation and relationship with other organizations and stakeholders [34,35,40]. Moreover, positive signals increase firm value and performance, whereas negative signals reduce stock price and product demand [41,42].…”

“…They find that in the SA region only Bangladesh and India have very limited research on CSR motivation. Furthermore, managerial research has been used in a very limited way in signaling theory [34][35][36] even though it has ample explanatory power in the economic perspective of sustainability disclosure and corporate governance elements. Therefore, our study shows the importance of performing a cross-country analysis of SA countries' corporate governance and total sustainability disclosure (economic, environmental, and social).…”

“…As a result, quality information and quality reporting send positive signals to stakeholders. Therefore, the organization receives honest signals from the market [34][35][36].…”

CSR Expenditure and Company Performance: Charity or Signal? Evidence from Indonesia

“…Signaling theory shows that corporates, in this regard as "good" citizens, convey separate CSR information and are reported independently which shows a signal of their superior commitment to CSR activities (Mahoney et al, 2013). The corporate expects that their actions aside from reducing the asymmetry of information, also to benefit from their signaling actions through CSR (Ching and Gerab, 2017). External stakeholders who are interested in the information released by the corporate will look for additional information.…”

Carbon Emission Disclosure and Profitability – Evidence from Manufacture Companies in Indonesia

“…Stakeholder Theory showed that a company is not an entity that only operates for its own benefit but the company must provide benefits to stakeholders (shareholders, creditors, consumers, suppliers, governments, communities, analysts and others) [10,19]. One of the communities interest to the company is the company's concern for the environment.…”