Too Good To Be True: Influencing Credibility Perceptions with Signaling Reference Explicitness and Assurance Depth

Abstract

We investigate how the selection of assurance topics and the format of their communication influence the credibility perception of sustainability report readers. This is important because misleading communication may discredit ethical sustainability assurance practices. Based on signaling theory and using an experimental approach, we are the first to examine false credibility signals in the context of sustainability assurance. We find that two variables related to sustainability assurance, reference explicitness and assurance depth, jointly influence the assurance signal and the perceived credibility of a sustainability report. Our findings indicate that readers are not at risk of false signaling but can make incorrect interpretations of the assurance signal and might respond negatively to well-intentioned signals. The main implications of our findings are that firms should refrain from increasing reference explicitness and should select only the most material topics. Taken together, our results provide new insights on the unethical practice of false signaling and provide an example of an incorrect signal interpretation by readers.

Progressive or pressuring? The signaling effects of egg freezing coverage and other work–life policies.

“…A signaling perspective allows for distortions in the signaling process (Connelly et al, 2011). Specifically, employees engage in an interpretation process that affects how organizational actions are perceived, which can result in a disconnect between organizational intentions and employee perceptions (Baier et al, 2021; Bangerter et al, 2012; Bowen & Ostroff, 2004). Thus, even if organizations intend an action to signal desirable characteristics, employees may instead perceive the action as signaling undesirable characteristics.…”

Does the economic value of new product announcements depend upon preannouncement signals? An empirical test of information asymmetry theories

“…Agency theory (Bosse and Phillips, 2016;Mishra, 2004;Naz et al, 2022;Sadeghi et al, 2022) primarily outlines the problems faced by principals because of information asymmetry, i.e. adverse selection and moral hazard, whereas signaling theory (Baier et al, 2022;Backus et al, 2019;Chatterjee et al, 2005;Steigenberger and Wilhelm, 2018;Taj, 2016) discusses the role of market signals or information release events that address principals' agency problems. Briefly, adverse selection is an ex ante problem because principals labor under information asymmetry to choose the best alternative from a menu of options.…”

“…As stated previously, principals’ adverse selection concerns can be addressed if product preannouncements are believable. To meet this threshold, firm signals will unambiguously communicate credible product introduction intentions only if they are costly for a company to walk back (Baier et al , 2022; Backus et al , 2019; Kirmani and Rao, 2000; Rao and Turut, 2019; Roma et al , 2023). As Kirmani and Rao (2000) note, “the costs associated with signaling are, in part, determined by a firm, which seeks to separate itself from another firm […] and the magnitude of such costs or potential costs serves as the […] firm’s “bond” because the expenditure associated with the signal will be forfeit if false” (p. 68, emphasis in italics).…”

Comparing the uncomparable? An investigation of car manufacturers' climate performance

“…The critical literature has also questioned the reliability of the sustainability reporting process, notably because of the underlying commercial issues and the auditors' lack of independence (e.g., Baier et al, 2021; Boiral & Heras‐Saizarbitoria, 2020; O'Dwyer & Owen, 2005; Perego & Kolk, 2012; Smith et al, 2011; Venturelli et al, 2020). Critical approaches tend to assume that the data in these reports is unreliable and, therefore, comparing them in order to establish rankings makes little sense.…”