The impact of strategic relevance and assurance of sustainability indicators on investors’ decisions

Mandy M Cheng, Wendy J. Green, John Chi Wa Ko

Research output: Contribution to journalArticleResearchpeer-review

197 Citations (Scopus)

Abstract

In this study, we report two 2 × 2 between-subjects experiments that investigate the effect of strategic relevance of reported sustainability information and its assurance on nonprofessional investors’ investment decisions. The first experiment manipulates strategic relevance of reported environmental, social, and governance (ESG) indicators between “high” and “low” by varying the company strategy (sustainability-based differentiation strategy versus cost leadership strategy unrelated to sustainability). The second experiment manipulates the strategic alignment of the ESG indicators (holding strategy constant). We also manipulate the presence (absence) of assurance in both experiments. Results from both experiments document that investors perceive ESG indicators to be more important, and are more willing to invest in the company if ESG indicators have higher strategic relevance. Experiment one also provides evidence that assurance increases investors’ willingness to invest to a greater extent when ESG indicators have high relevance to the company strategy. Our findings suggest that the assurance of ESG indicators has a beneficial signaling role in communicating the importance of this reported information to investors.

Original languageEnglish
Pages (from-to)131-162
Number of pages32
JournalAuditing: A Journal of Practice & Theory
Volume34
Issue number1
DOIs
Publication statusPublished - 1 Feb 2015
Externally publishedYes

Keywords

  • Environmental social governance indicators
  • Strategic performance information
  • Strategy
  • Sustainability assurance

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