Impact of sustainability reporting initiatives on the financial performance of Philippine listed companies
-
DOIhttp://dx.doi.org/10.21511/ee.15(1).2024.11
-
Article InfoVolume 15 2024, Issue #1, pp. 130-148
- 626 Views
-
146 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Concerns for the environment and sustainability require entities to contribute to societal development toward sustainable advancement. There is also an increasing demand for high-quality and reliable reports on sustainability-related matters. The study aims to highlight the impact of sustainability reporting initiatives on financial performance through the GRI reporting framework and four determinants of financial performance – return on assets (ROA), return on equity (ROE), and basic and diluted earnings per share (EPS). Conducting random effects generalized least square (GLS) regression, this paper examines 127 firm-year observations from 47 Philippine listed entities covering 2019–2021. The results show a significant negative relationship between the total sustainability reporting initiative index score and financial performance, represented by return on equity (coefficient = –0.4690, z-value = –1.68). Moreover, there is a positive significant relationship between economic reporting and financial performance, particularly return on assets, basic earnings per share, and diluted earnings per share (coefficients = 0.1590, 12.6200, 12.6500; z-values = 3.11, 1.72, 1.73). A negative significant relationship exists between social reporting and financial performance, particularly return on equity and basic and diluted earnings per share (coefficients = –0.5530, –14.1600, –14.1400; z-values = –2.04, –2.65, –2.65). This study pioneers an investigation into the nascent implementation of Securities and Exchange Commission (SEC) sustainability reporting and the implications of sustainability initiatives on corporate performance in the Philippines. The results shed light on the dynamics of sustainability initiatives and financial outcomes to encourage firms to harmonize economic success with environmental preservation and societal advancement toward value creation.
- Keywords
-
JEL Classification (Paper profile tab)G30, M14, M41, Q56
-
References46
-
Tables10
-
Figures1
-
- Figure 1. Average annual Sustainability Index scores of Philippine listed firms
-
- Table 1. Sample selection
- Table 2. Descriptive statistics
- Table 3. Pearson correlation
- Table 4. Panel regression results on ROA
- Table 5. Panel regression results on ROE
- Table 6. Panel regression results on BEPS
- Table 7. Panel regression results on DEPS
- Table 8. Full model regression on all proxies of financial performance
- Table A1. Variable definition
- Table B1. Global Reporting Initiative (GRI) disclosure content indexes
-
- Ali, H. Y., Danish, R. Q., & Asrar-ul-Haq, M. (2020). How corporate social responsibility boosts firm financial performance: The mediating role of corporate image and customer satisfaction. Corporate Social Responsibility and Environmental Management, 27(1), 166-177.
- Alshehhi, A., Nobanee, H., & Khare, N. (2018). The impact of sustainability practices on corporate financial performance: Literature trends and future research potential. Sustainability, 10(2), Article 494.
- Barauskaite, G., & Streimikiene, D. (2021). Corporate social responsibility and financial performance of companies: The puzzle of concepts, definitions and assessment methods. Corporate Social Responsibility and Environmental Management, 28(1), 278-287.
- Bebbington, J., Larrinaga-Gonzalez, C., & Moneva-Abadia, J. M. (2008). Legitimating reputation/the reputation of legitimacy theory. Accounting, Auditing & Accountability Journal, 21(3), 371-374.
- Brogi, M., & Lagasio, V. (2019). Environmental, social, and governance and company profitability: Are financial intermediaries different? Corporate Social Responsibility and Environmental Management, 26(3), 576-587.
- Buallay, A. (2020). Sustainability reporting and firm’s performance: Comparative study between manufacturing and banking sectors. International Journal of Productivity and Performance Management, 69(3), 431-445.
- Burhan, A. H., & Rahmanti, W. (2012). The impact of sustainability reporting on company performance. Journal of Economics, Business, and Accountancy: Ventura, 15(2), 257-272.
- Cantele, S., & Zardini, A. (2018). Is sustainability a competitive advantage for small businesses? An empirical analysis of possible mediators in the sustainability-financial performance relationship. Journal of Cleaner Production, 182, 166-176.
- Cegarra-Navarro, J. G., Reverte, C., Gómez-Melero, E., & Wensley, A. K. (2016). Linking social and economic responsibilities with financial performance: The role of innovation. European Management Journal, 34(5), 530-539.
- Cho, S. J., Chung, C. Y., & Young, J. (2019). Study on the relationship between CSR and financial performance. Sustainability, 11(2), Article 343.
- Cornell, B., & Shapiro, A. C. (2021). Corporate stakeholders, corporate valuation and ESG. European Financial Management, 27(2), 196-207.
- Deegan, C. M. (2019). Legitimacy theory: Despite its enduring popularity and contribution, time is right for a necessary makeover. Accounting, Auditing & Accountability Journal, 32(8), 2307-2329.
- Ebdane, T. M. L. (2016). The impact of sustainability reporting on company performance: The Philippine perspective. Journal of Asia Entrepreneurship and Sustainability, 12(1), 34-76.
- Elkington, J. (1998). Cannibals with forks: The triple-bottom line of sustainability. Gabriola Island, British Columbia, Canada: New Society Publishers.
- Environmental Performance Index (EPI). (2022). 2022 EPI Results – Philippines.
- Feng, Y., Akram, R., Hieu, V. M., & Hoang Tien, N. (2022). The impact of corporate social responsibility on the sustainable financial performance of Italian firms: Mediating role of firm reputation. Economic Research, 35(1), 4740-4758.
- Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman, Boston.
- Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Cambridge University Press.
- Global Reporting Initiative (GRI). (2022, June 30). Consolidated set of the GRI standards.
- Gray, R., Kouhy, R., & Lavers, S. (1995). Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing & Accountability Journal, 8(2), 47-77.
- Gupta, A. K., & Gupta, N. (2020). Effect of corporate environmental sustainability on dimensions of firm performance – Towards sustainable development: Evidence from India. Journal of Cleaner Production, 253, Article 119948.
- Herold, D. M. (2018). Demystifying the link between institutional theory and stakeholder theory in sustainability reporting. Economics, Management and Sustainability, 3(2), 6-19.
- Hörisch, J., Freeman, R. E., & Schaltegger, S. (2014). Applying stakeholder theory in sustainability management: Links, similarities, dissimilarities, and a conceptual framework. Organization & Environment, 27(4), 328-346.
- Hörisch, J., Schattegger, S., & Freeman, R. E. (2020). Integrating stakeholder theory and sustainability accounting: A conceptual synthesis. Journal of Cleaner Production, 275, Article 124097.
- Hou, T. C.-T. (2019). The relationship between corporate social responsibility and sustainable financial performance: Firm-level evidence from Taiwan. Corporate Social Responsibility and Environmental Management, 26(1), 19-28.
- Hussain, N., Rigoni, U., & Cavezzali, E. (2018). Does it pay to be sustainable? Looking inside the black box of the relationship between sustainability performance and financial performance. Corporate Social Responsibility and Environmental Management, 25(6), 1198-1211.
- Hussain, N., Rigoni, U., & Orij, R. P. (2016). Corporate governance and sustainability performance: Analysis of triple bottom line performance. Journal of Business Ethics, 149, 411-432.
- IFRS Foundation. (n.d.a). IAS1 presentation of financial statements.
- IFRS Foundation. (n.d.b). International sustainability standards board.
- Jan, A. A., Lai, F. W., Draz, M. U., Tahir, M., Ali, S. E. A., Zahid, M., & Shad, M. K. (2022). Integrating sustainability practices into Islamic corporate governance for sustainable firm performance: From the lens of agency and stakeholder theories. Quality & Quantity, 56, 2989-3012.
- Jung, S., Nam, C., Yang, D.H., & Kim, S. (2018). Does corporate sustainability performance increase corporate financial performance? Focusing on the information and communication technology industry in Korea. Sustainable Development, 26(3), 243-254.
- Lanis, R., & Richardson, G. (2013). Corporate social responsibility and tax aggressiveness: A test of legitimacy theory. Accounting, Auditing & Accountability Journal, 26(1), 75-100.
- Laskar, N. (2019). Does sustainability reporting enhance firms profitability? A study on select companies from India and South Korea. Indian Journal of Corporate Governance, 12(1), 2-20.
- Lee, K. H., Cin, B. C., & Lee, E. Y. (2016). Environmental responsibility and firm performance: The application of an environmental, social and governance model. Business Strategy and the Environment, 25(1), 40-53.
- Miroshnychenko, I., Barontini, R., & Testa, F. (2017). Green practices and financial performance: A global outlook. Journal of Cleaner Production, 147, 340-351.
- Mohammed, M. (2013). Corporate accountability in the context of sustainability – A conceptual framework. EuroMed Journal of Business, 8(3), 243-254.
- O’Donovan, G. (2002). Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory. Accounting, Auditing & Accountability Journal, 15(3), 344-371.
- Okafor, A., Adeleye, B. N., & Adusei, M. (2021). Corporate social responsibility and financial performance: Evidence from US tech firms. Journal of Cleaner Production, 292, Article 126078.
- Oncioiu, I., Petrescu, A. G., Bîlcan, F. R., Petrescu, M., Popescu, D. M., & Anghel, E. (2020). Corporate sustainability reporting and financial performance. Sustainability, 12(10), Article 4297.
- Partalidou, X., Zafeiriou, E., Giannarakis, G., & Sariannidis, N. (2020). The effect of corporate social responsibility performance on financial performance: The case of food industry. Benchmarking: An International Journal, 27(10), 2701-2720.
- World Commission on Environment and Development. (1987). Our Common Future.
- Xiao, C., Wang, Q., Van Der Vaart, T., & Van Dork, D. P. (2018). When does corporate sustainability performance pay off? The impact of country-level sustainability performance. Ecological Economics, 146, 325-333.
- Xie, J., Nozawa, W., Yagi, M., Fujii, H., & Shunsuke, M. (2019a). Do environmental, social, and governance activities improve corporate financial performance? Business Strategy and the Environment, 28(2), 286-300.
- Xie, X., Huo, J., & Zou, H. (2019b). Green process innovation, green product innovation, and corporate financial performance: A content analysis method. Journal of Business Research, 101, 697-706.
- Yoon, T. I., & Byun, H. Y. (2023). A sentiment analysis of CEO message in sustainability report. Journal of Public Relations, 27(1), 153-181.
- Yu, M., & Zhao, R. (2015). Sustainability and firm valuation: An international investigation. International Journal of Accounting and Information Management, 23(3), 289-307.