How does sustainability reporting matter? An event study on the value relevance of sustainability reporting in the Nordics
Abstract: We examine stock market's reaction to corporate sustainability disclosure, specifically, annual sustainability reporting. The purpose of this study is to investigate the value relevance of sustainability reporting evidenced from investors' reaction to the newly released sustainability information. Our sample consists of 731 observations of sustainability reporting release between 2009 and 2018, corresponding to 122 public listed firms incorporated in Sweden, Finland, Norway and Denmark. Based on the single-sample T-test on the aggregated abnormal return and the multivariant regression analysis, we find that stock market does react to the release of sustainability reports, and the magnitude of such reaction is positively associated with the reporting firm's sustainability performance, supporting the value-enhancing theory of sustainability. We also find that i) the positive association between stock market reaction and sustainability performance is stronger for firms in a weaker information environment; and ii) issuing sustainability reports in the stand-alone form will lead to stronger positive association between stock market reaction and sustainability performance, only when the reporting firm has superior sustainability performance. Our findings provide empirical evidence on Nordic stock market's reaction to sustainability reporting, help corporate internal parties in their decision making about sustainability reporting, and offer public sector players reference for the cause of sustainability.
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