From Theory to Practice of Signaling Theory: Sustainability Reporting Strategy Impact on Stock Price Crash Risk with Sustainability Reporting Quality as Mediating Variable

Abstract

Stock Price Crash Risk (SPCR) is the risk of stock price collapse. SPCR conditions must be understood by stakeholders, among others: for regulators in order to avoid the devastation of stock prices that have systemic impact on the capital market; for suppliers to sell their products to the company; for company employees to maintain the sustainability of the company so that they can still work; for shareholders to keep the stock of the company from the risk of delisting in the capital market; to the prospective investor as the basis of investment decision in the capital market; and to the Investment Manager in order to master the stock portfolio risk knowledge in the capital market. We examine the relation among implementation of sustainability reporting strategy (SRS) impact on SPCR with sustainability reporting quality (SRQ) as variable intervening. Using signaling theory, we find that a good company will provide signal hints for stakeholders regarding SRS that have a significant effect on the SRQ. This provides legitimacy for the company by gaining stakeholders’ confidence to buy its stocks (shares) so as to minimize SPCR.     Keywords: Signaling theory, stock price crash risk (SPCR), sustainability reporting strategy (SRS), sustainability reporting quality (SRQ