Investors' reaction to the use of sustainability assurance as an impression management strategy
DOI:
https://doi.org/10.32826/reyf.v1i2.348Keywords:
sustainability reporting, assurance, management capture, impression management, capital marketAbstract
The study is based on the potential managerial capture of the sustainability assurance process. In light of this possibility, our question is: does assurance increase the reliability of sustainability reports, or can it be used by managers to manipulate the users' perceptions of sustainability reports through impression management strategies? In this framework, we test the impact of assurance on the capital markets. To achieve this purpose, we examine whether investors can detect, and therefore penalize, an impression management strategy consisting of non-compliance with the principle of balance in assurance of questionable sustainability reports. To address the research question, we employed a sample of European listed companies in the period 2012-2016, carried out a content analysis of the assurance reports and applied regression techniques for panel data. The empirical evidence obtained shows that investors penalize the assurance of questionable sustainability reports that do not comply with the balanced reporting principle, being an evidence that assurance is not a tool that always allows to overcome the investors’ skepticism about the veracity of sustainability reports.
References
Arellano, M., and Bond, S., 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations, The Review of Economic Studies. 58 (2), 277-297.
Arellano, M., and Bover, O., 1995. Another look at the instrumental variable estimation of error-components models, Journal of econometrics. 68(1), 29-51.
Ballou, B., Chen, P. C., Grenier, J. H., and Heitger, D. L., 2018. Corporate social responsibility assurance and reporting quality: Evidence from restatements, Journal of Accounting and Public Policy. 37(2), 167-188.
Blundell, R., and Bond, S., 1998. Initial conditions and moment restrictions in dynamic panel data models, Journal of econometrics. 87(1), 115-143.
Braam, G. and Peeters, R., 2018. Corporate sustainability performance and assurance on sustainability reports: diffusion of accounting practices in the realm of sustainable development, Corporate Social Responsibility and Environmental Management. 25 (2), 164-181.
Boiral, O., 2013. Sustainability reports as simulacra? A counter-account of A and A+ GRI reports, Accounting, Auditing & Accountability Journal. 26(7), 1036-1071.
Boiral, O., 2016. Accounting for the unaccountable: Biodiversity reporting and impression management, Journal of business ethics. 135(4), 751-768.
Boiral, O., Heras-Saizarbitoria, I. and Brotherton, M.C., 2019a. Assessing and improving the quality of sustainability reports: the auditors’ perspective, Journal of Business Ethics. 155 (3), 703-721.
Boiral, O., Heras-Saizarbitoria, I., Brotherton, M.C. and Bernard, J., 2019b. Ethical issues in the assurance of sustainability reports: perspectives from assurance providers, Journal of Business Ethics. 159 (4), 1111-1125.
Boiral, O., and Heras-Saizarbitoria, I., 2020. Sustainability reporting assurance: Creating stakeholder accountability through hyperreality?, Journal of Cleaner Production. 243, 11859.
Botosan, C. A., and Plumlee, M. A., 2005. Assessing alternative proxies for the expected risk premium, The accounting review. 80(1), 21-53.
Casey, R. J., and Grenier, J. H., 2015. Understanding and contributing to the enigma of corporate social responsibility (CSR) assurance in the United States, Auditing: A Journal of Practice & Theory. 34(1), 97-130.
Chatterji, A. K., and Toffel, M. W., 2010. How firms respond to being rated, Strategic Management Journal. 31(9), 917-945.
Cho, C. H., and Patten, D. M., 2007. The role of environmental disclosures as tools of legitimacy: A research note, Accounting, organizations and society. 32(7-8), 639-647.
Cho, C. H., Roberts, R. W., and Patten, D. M., 2010. The language of US corporate environmental disclosure, Accounting, Organizations and Society. 35(4), 431-443.
Cho, C. H., Michelon, G., and Patten, D. M., 2012. Impression management in sustainability reports: An empirical investigation of the use of graphs, Accounting and the Public Interest. 12(1), 16-37.
Cho, C. H., Laine, M., Roberts, R. W., and Rodrigue, M., 2015. Organized hypocrisy, organizational fac¸ades, and sustainability reporting, Accounting, Organizations and Society. 40, 78–94.
Deegan, C., 2002. Introduction: The legitimising effect of social and environmental disclosures–a theoretical foundation, Accounting, auditing & accountability journal. 15(3), 282-311.
Deegan, C., and Blomquist, C., 2006. Stakeholder influence on corporate reporting: An exploration of the interaction between WWF-Australia and the Australian minerals industry, Accounting, organizations and society. 31(4-5), 343-372.
Deegan, C., 2010. Organizational legitimacy as a motive for sustainability reporting, In Sustainability accounting and accountability. 146-168.
Dhaliwal, D. S., Li, O. Z., Tsang, A., and Yang, Y. G., 2011. Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting, The accounting review. 86(1), 59-100.
Dhaliwal, D.S., Radhakrishnan, S., Tsang, A. and Yang, Y.G., 2012. Nonfinancial disclosure and analyst forecast accuracy: international evidence on corporate social responsibility disclosure, The Accounting Review. 87(3), 723-759.
DICTION 7.2, 2013. Help manual, DICTION 7 the text analysis program. Digitext Incorporation. Retrieved on 25 April 2023 from: http://dictionsoftware.com/wp-content/uploads/2020/09/DICTION-Manual-9-14-20.pdf
Diouf, D., and Boiral, O., 2017. The quality of sustainability reports and impression management: A stakeholder perspective, Accounting, Auditing & Accountability Journal. 30(3), 643-667.
Easton, P. D., 2004. PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital, The accounting review. 79(1), 73-95.
Fonseca, A., 2010. How credible are mining corporations’ sustainability reports? A critical analysis of external assurance under the requirements of the international council on mining and metals, Corporate Social Responsibility and Environmental Management. 17(6), 355–370.
Fonseca, A., McAllister, M. L., and Fitzpatrick, P., 2014. Sustainability reporting among mining corporations: a constructive critique of the GRI approach, Journal of Cleaner Production. 84, 70–83.
Francis, J. R., Khurana, I. K., and Pereira, R., 2005. Disclosure incentives and effects on cost of capital around the world, The accounting review. 80(4), 1125-1162.
Francis, J., Nanda, D., and Olsson, P., 2008. Voluntary disclosure, earnings quality, and cost of capital, Journal of accounting research. 46(1), 53-99.
Frías-Aceituno, J. V., Rodríguez-Ariza, L., and García-Sánchez, I. M., 2013. Is integrated reporting determined by a country's legal system? An exploratory study, Journal of cleaner production. 44, 45-55
García‐Sánchez, I. M., Hussain, N., Martínez‐Ferrero, J., and Ruiz‐Barbadillo, E., 2019. Impact of disclosure and assurance quality of corporate sustainability reports on access to finance, Corporate Social Responsibility and Environmental Management. 26(4), 832-848.
García-Sánchez, I. M., and Noguera-Gámez, L., 2017. Integrated information and the cost of capital, International Business Review. 26(5), 959-975.
Global Reporting Initiative (GRI), 2006. Sustainability Reporting Guidelines. Amsterdam.
Hahn, R., and Kühnen, M., 2013. Determinants of sustainability reporting: A review of results, trends, theory, and opportunities in an expanding field of research, Journal of Cleaner Production. 59, 5–21.
Hassan, A., 2019. Verbal tones in sustainability assurance statements: An empirical exploration of explanatory factors, Sustainability Accounting, Management and Policy Journal. 10(3), 427-450.
Huang, X., Teoh, S. H., and Zhang, Y., 2014. Tone management, The Accounting Review. 89(3), 1083-1113.
Hummel, K., Schlick, C., and Fifka, M., 2019. The role of sustainability performance and accounting assurors in sustainability assurance engagements, Journal of Business Ethics. 154, 733-757.
Kaufmann, D., Kraay, A., and Mastruzzi, M., 2009. Governance matters VIII: aggregate and individual governance indicators, 1996-2008, World bank policy research working paper. 4978.
Kim, J. B., Simunic, D. A., Stein, M. T., and Yi, C. H., 2011. Voluntary audits and the cost of debt capital for privately held firms: Korean evidence, Contemporary accounting research. 28(2), 585-615.
Kolk, A. and Perego, P. (2010). Determinants of the adoption of sustainability assurance statements: an international investigation, Business Strategy and the Environment. 18, 182-198.
La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., and Vishny, R. W., 1997. Legal determinants of external finance, The Journal of finance. 52(3), 1131-1150.
La Porta, R. L., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R. W., 1998. Law and finance, Journal of political economy. 106(6), 1113-1155.
Loughran, T., and McDonald, B., 2011. When is a liability not a liability? Textual analysis, dictionaries, and 10‐Ks, The Journal of finance. 66(1), 35-65
Martínez‐Ferrero, J., Ruiz‐Barbadillo, E., and Guidi, M., 2021. How capital markets assess the credibility and accuracy of CSR reporting: Exploring the effects of assurance quality and CSR restatement issuance, Business Ethics, the Environment & Responsibility. 30(4), 551-569.
Martínez‐Ferrero, J., and García‐Sánchez, I. M., 2017. Sustainability assurance and cost of capital: Does assurance impact on credibility of corporate social responsibility information?, Business Ethics: A European Review. 26(3), 223-239.
Martínez-Ferrero, J., I. M. García-Sánchez and Ruiz-Barbadillo, E., 2018. The quality of sustainability assurance reports: The expertise and experience of assurance providers as determinants, Business Strategy and the Environment. 27(8), 1181-1196.
Merkl-Davies, D. M., and Brennan, N. M., 2007. Discretionary disclosure strategies in corporate narratives: incremental information or impression management?, Journal of accounting literature. 27, 116-196.
Melloni, G., Caglio, A., and Perego, P., 2017. Saying more with less? Disclosure conciseness, completeness and balance in Integrated Reports, Journal of Accounting and Public Policy. 36(3), 220-238.
Michelon, G., Pilonato, S., and Ricceri, F., 2015. CSR reporting practices and the quality of disclosure: An empirical analysis, Critical perspectives on accounting. 33, 59-78.
Michelon, G., Patten, D. M., and Romi, A. M., 2019. Creating legitimacy for sustainability assurance practices: evidence from sustainability restatements, European Accounting Review. 28(2), 395-422.
Moroney, R., Windsor, C., and Aw, Y. T., 2012. Evidence of assurance enhancing the quality of voluntary environmental disclosures: An empirical analysis, Accounting & Finance. 52(3), 903–939.
O'Dwyer, B., and Owen, D. L., 2005. Assurance statement practice in environmental, social and sustainability reporting: A critical evaluation, The British Accounting Review. 37(2), 205–229.
O’Dwyer, B., Owen, D. and Unerman, J., 2011. Seeking legitimacy for new assurance forms: the case of assurance on sustainability reporting, Accounting, Organizations and Society. 36(1), 31-52.
Ohlson, J. A., and Juettner-Nauroth, B. E., 2005. Expected EPS and EPS growth as determinants of value, Review of accounting studies. 10, 349-365.
Perego, P., and Kolk, A., 2012. Multinationals’ accountability on sustainability: The evolution of third-party assurance of sustainability reports, Journal of Business Ethics. 110(2), 173–190.
Ruiz-Barbadillo, E., and Martínez-Ferrero, J., 2020. Empirical analysis of the effect of the joint provision of audit and sustainability assurance services on assurance quality, Journal of Cleaner Production. 266, 121943.
Ruiz-Barbadillo, E., and Martínez-Ferrero, J., 2022. The choice of incumbent financial auditors to provide sustainability assurance and audit services from a legitimacy perspective, Sustainability Accounting, Management and Policy Journal. 13(2), 459-493.
Simnett, R., Vanstraelen, A. and Chua, W.F., 2009. Assurance on sustainability reports: an international comparison, The Accounting Review. 84(3), 937-967.
Smith, J., Haniffa, R. and Fairbrass, J., 2011. A conceptual framework for investigating ‘capture’ in corporate sustainability reporting assurance, Journal of Business Ethics. 99(3), 425-439.
Talbot, D., and Boiral, O., 2018. GHG reporting and impression management: An assessment of sustainability reports from the energy sector, Journal of Business Ethics. 147, 367-383.
Wooldridge, J. M., 2010. Econometric analysis of cross section and panel data. MIT press.
Zorio, A., García‐Benau, M. A., and Sierra, L., 2013. Sustainability development and the quality of assurance report: Empirical evidence, Business Strategy and the Environment. 22(7), 484–5.
Downloads
Published
Issue
Section
License
Those authors who have publications with this journal accept the following terms:
- The authors will retain their copyright and guarantee the journal the right of first publication of their work, which will be simultaneously subject to the Creative Commons Recognition License that allows third parties to share the work whenever its author is indicated and its first publication is this magazine.
- Authors may adopt other non-exclusive licensing agreements for the distribution of the published work (eg, deposit it in an institutional telematic file or publish it in a monographic volume) whenever the initial publication is indicated in this magazine.
- Authors are allowed and advised to disseminate their work through the Internet (eg in institutional telematic files or on their website) before and during the submission process, which can produce interesting exchanges and increase the citations of the published work. (See The effect of open access ).
