Determinants of Compliance with Guidelines and External Assurance of Sustainability Reports

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Organizations increasingly issue sustainability reports. However, these often suffer from credibility and transparency concerns. Complying with sustainability reporting guidelines (SRG) and external assurance are two mechanisms to address these concerns. This paper studies factors that determine the variation in managements’ decisions regarding sustainability reporting. Especially, it examines the impact of corporate sustainability performance (CSP) and corporate governance mechanisms on compliance with SRG and on employing external assurance. The sample consists of firms that voluntarily disclose sustainability information, resulting in panel data from 4597 international firm-year observations for the years 2013-2017. The analyses show that firms with inferior CSP are less likely to comply with SRG and to employ external assurance, while firms with superior CSP are more likely to apply SRG and to employ external assurance. This supports signalling theory, suggesting that firms with superior CSP use compliance with SRG and external assurance to signal their superior performance. In addition, a strong board composition and stakeholder engagement are positively associated with the likelihood to apply SRG and to employ external assurance. Finally, the decisions to comply with SRG and to employ external assurance are interrelated. This suggests that without mandatory regulation, compliance with SRG and independent assurance reinforce each other.
Faculteit der Managementwetenschappen