Purpose - This study investigates the effect sustainability reporting has on companies’ financial performance. Sustainability reports are voluntarily released by companies that provide additional information to the stakeholders regarding the impact their activities have on the environment and society.
Design/Methodology/Approach: This empirical paper analyses and identifies overlaps, gaps, limitations and flaws in current constructs of sustainability reporting. Using event study method to estimate abnormal returns for a 31 day event window for a sample of 68 listed companies, 17 listed in New Zealand Stock Exchange (NZX) and 51 listed in the Australian Stock exchange (ASX).
Findings: Results of the empirical study indicate that sustainability reporting is statistically significant in explaining abnormal returns for the Australian companies. The cross-sectional analysis results of the combined dataset for the two countries support the view that the contextual factors of industry type significantly impacts abnormal returns of the reporting companies. In this regard, this study identifies several contextual factors, such as industry and type of sustainability report, that have the potential to impact the relationship. Only the CSR type of sustainability report was significant in explaining the abnormal return of New Zealand companies.
Practical implications: To underscore the practical implications of the theory, it shows, by reference to the model, how sustainability reporting influences financial performance for companies engaged in industries that have environmental implications. However, the simplistic model may also have many other applications in management and the social sciences.
Originality value: The proposed model is highly original in providing a framework for studying the impact of sustainability reporting in companies that have an environmental impact
