Financial and Sustainability Assurance Quality, and Firm Valuation: Evidence from the European Market.

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Following the increased interest of stakeholders in financial and sustainability reporting, improving assurance quality to enhance the credibility and accuracy of disclosed information is deemed necessary for investment-related decision-making. However, due to differences in national and international assurance regimes and acceptable standards, investors may initially be sceptical. Stakeholders may therefore opt for complementary assured reports, incorporating the assurance quality of both reports in investment-related judgements. This study posits that different levels of assurance quality on separate financial and sustainability reports influence the stakeholders’ perception on the assured reports of the organisation, explaining the variations in firm valuation. Using a panel data set of 319 companies from 22 European countries during the period 2013-2018, the results indicate that, in the short term, the firm valuation of an organisation with a superior assurance quality on financial reports is more likely to increase, even when these companies published an inferior assured sustainability report. Firm valuation is not significantly affected for companies that published a superior assured sustainability report besides an inferior assured financial report. The findings and implications are discussed in further detail. (Keywords: Firm Value, Financial and Sustainability Assurance, Halo effect, Assurance Quality, Voluntary Assurance, Mandatory Assurance)
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