Sustainability Reporting and Value Relevance of Financial Statements

Bambang Sutopo,Sebastian Kot,Arum Adiati,Lina Ardila

doi:10.3390/su10030678

Abstract

This study examines whether information about the winners of the Sustainability Reporting Award (SRA) contributes to the usefulness of the information in financial statements. This study used a sample consisting of 110 winners of SRA (SRA firms) and 110 companies that did not receive SRA (non-SRA firms) from 2008 to 2016. The study found that earnings per share (EPS), earnings per share change (EPSC), and book value per share (BVPS) are value-relevant information. Results of comparison between SRA firms and non-SRA firms show that the positive association between EPS and stock price (P) and the positive association of EPS with stock returns (R) for SRA firms are higher than that for the non-SRA firms. In addition, findings of this study indicate that EPSC is positively associated with R when EPSC and R are measured by Indonesian rupiah (IDR) instead of by percentage, and the positive association between EPSC and R for the SRA firms is higher than that for the non-SRA firms. Thus, the results are sensitive to measures of the variables. However, this study found that value relevance of BVPS for SRA firms is lower than for non-SRA firms. Implication of this study is that information about the winners of SRA contributes to the usefulness of financial statements, especially the information of EPS and EPSC.

Highlights

The importance of the financial markets, institutions, and instruments have grown markedly during the last five decades
To contribute to the accounting research literature, on the value relevance of accounting information, the present study examines the impact of the Sustainability Reporting Award (SRA) on the value relevance of information contained in financial statements, book value per share, earning per share, and earnings per share change, using data from an emerging market, Indonesia, that recently organized SRA with voluntarily participating companies
This study aims to examine whether the information on the Sustainability Reporting Award (SRA) winners has an impact on the value relevance of the financial statements, which include earnings per share (EPS), earnings per share change (EPSC), and book value per share (BVPS)

Summary

Introduction

The importance of the financial markets, institutions, and instruments have grown markedly during the last five decades. Performance of a company and its prospects are important factors that affect the stock prices. Information on the performance and the prospects of the company is reflected in the financial statements presented for investment decision-making purposes. Many studies have been conducted to examine the usefulness of accounting information, including financial statements, by examining the value relevance of accounting information, which, among other things, is done by examining the relationship between accounting information and stock prices or stock returns. Many previous studies have examined and found factors affecting the relationship between accounting information and stock prices or stock returns. The current study examines whether the Sustainability Reporting Award (SRA) is a factor that affects the value relevance of accounting information. This study examines the impact of SRA on the value relevance of financial statements

Objectives

Methods

Results

Discussion

Conclusion