Voluntary disclosure of non-financial information and its association with sustainability performance

Abstract

This paper investigates management incentives for disclosing voluntary non-financial information and whether such disclosure is associated with firms' environmental, social, and governance (ESG) sustainability performance. We hand-collect 580 sample firms' voluntary non-financial disclosure on product, competition, industry, customers, trends, and technology data from their annual reports in 2010. We find that information contents and managerial motivations play an important role in assessing the antecedents and consequences of non-financial disclosure. Specifically, we find that earnings quality is a more pronounced factor in influencing forward-looking non-financial disclosures whereas proprietary cost is a more pronounced factor in influencing historical non-financial disclosures. Using the ratings from the KLD database to construct ESG sustainability performance, we find a two-directional association between non-financial disclosures and sustainability performance. Specifically, forward-looking non-financial disclosures are associated with a one year lead in sustainability performance, whereas current year sustainability performance is linked to more disclosures of historical non-financial information in the year-end annual filings.