Online Sustainability Reporting and Firm Performance: Lessons Learned from Text Mining

Xue Ning,Jiban Khuntia,Dobin Yim

doi:10.3390/su13031069

Xue Ning, Jiban Khuntia + Show 1 more

Open Access

https://doi.org/10.3390/su13031069

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Abstract

As a corporate social responsibility (CSR) initiative, firms are increasingly disclosing sustainability indicators on online platforms to attract stakeholders’ interests. It is vital to understand what indicators reflect more on a firm’s performance and valuations. This study focuses on deriving value-oriented business intelligence from the voluntary disclosure of sustainability reports. The analysis in this study involves a three-stage approach: (1) Latent Dirichlet allocation (LDA) based topic modeling algorithm to identify and summarize typical contents expressed in various documents, (2) firm’s sustainability maturity modeled as a function of its strategic intent using a latent Markov model (LMM) to estimate the statistical significance and the extent of their relationships, and (3) empirical analysis using random effect linear and non-linear probit models to explore the impact of antecedents and firm performance consequences of three strategic intents. This study highlights using an advanced business analytics approach, specifically with latent Dirichlet allocation (LDA) topic modeling, to codify intangible knowledge embedded in annual sustainability reports to infer a firm’s strategic intent behind voluntary disclosure. In addition, this study aims to analyze the influence of the firm’s sustainability strategic intent on its financial performance. A secondary panel dataset consisting of information on 680 firms in 3 years was constructed by matching the text mined data with information from other sources. Results indicate that, on the one hand, while external stakeholder engagement is the primary motivation behind voluntary disclosure of sustainability reporting, firms are starting to engage internal stakeholders through workforce practices. On the other hand, internal employee-oriented intent has more influence on firm performance than external customer-oriented intent. This study demonstrates a toolset to index firms’ sustainability indicators and evaluates firms’ sustainability practice as an intangible asset and its impact on firms’ financial performance.

Highlights

We model a firm’s sustainability maturity as a function of its strategic intent using a latent Markov model (LMM) to estimate the statistical significance and the extent of their relationships
We find the impacts of topics around the environment, social, and governance (ESG) on these three primary strategic intents’ transition probabilities
We derive from the model estimation as the strong motivation behind sustainability reporting and the three topics’ distributions in each indicator document’s detailed sections

Summary

Introduction

Corporate social responsibility (CSR) initiatives create a positive signal to stakeholders, including investors, customers, and employees [1]. This is credence for firms, with executives recognizing the importance of sustainability for underlying reputation, marketing, and strategy linked business imperatives. The surge in sustainability interests is driven by the growing percentage of intangible assets representing market value, overtaking physical and financial assets, and more so in uncertain conditions.

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