The Impact of sustainability reporting on firm value: with special reference to public listed companies in Sri Lanka

Abstract

Sustainability has become an important concept during the past decades due to the enormous increase in sustainability-related issues faced by business organizations. It is a concept which consists of three facets, namely economic, environmental, and social. Even though there are many studies conducted related to sustainability reporting (SR), many of them are related to financial performance and there were only a few studies related to firm value. However, similar studies which have been carried out in the international context pertaining to this topic might not apply to the Sri Lankan context directly. Since there is a major shortfall of academic work conducted, the foremost intention of conducting this research work is to evaluate the effect of SR on firm value in the Sri Lankan context. This research also identifies the level of SR according to the Global Report Initiative (GRI) Framework. SR is measured by generating a disclosure index using the GRI G4 guidelines, while Tobin's Q ratio is used to measure the firm value. The simple random sampling technique was employed to get the sample of 20 companies that are listed on the Colombo Stock Exchange (CSE), Sri Lanka out of the population of companies who make SR practices in line with the GRI framework. The data was collected through means of the reports generated annually by the selected sample of companies for the period of study from 2016 to 2020, which are available to the general public. Furthermore, the researcher applies a panel data regression model to analyze the data. The results of the study indicate that the impact of SR on firm value is statistically significant with a negative relationship between SR and firm value when controlled for the effect of firm size and leverage. The findings of this study will influence the capital market participants to make more informed investment decisions.