The Effect of Sustainability Reporting on Firm Value in Nigeria: Evidence from Listed Consumer Good Firms

Sadiq Oshoke AKHOR & Uwadiah John OROBOH
Department of Accounting, Faculty of Arts, Management and Social Sciences, Edo State University, Uzairue, Nigeria
DOI: https://doi.org/10.51244/IJRSI.2023.10727
Received: 05 July 2023; Revised: 17 July 2023; Accepted: 20 July 2023; Published: 24 August 2023

Abstract: The study empirically investigated the effect of sustainability reporting on firm value in Nigeria. The study objectives were to examine the effect of economic sustainability reporting, environmental sustainability reporting, and social sustainability reporting on firm value. The population for the study consisted of listed consumer goods companies in the Nigerian Stock Group (NGX). The studied population had the responsibility to publish their financial statements for six (6) consecutive years from 2016 to 2021. Secondary data used for the study was collected from a sample of sixteen (16) listed consumer goods companies. Robust regression technique was used to test the formulated hypotheses. The regression results revealed that economic sustainability reporting had a positive and significant effect on firm value at a 1% level of significance, environmental sustainability reporting had a positive and significant effect on firm value at a 1% level of significance and social sustainability reporting had a negative and significant effect on firm value. The study recommended that the management of Nigerian listed consumer goods companies should focus more on sustainability reporting in terms of economic reporting and environmental reporting to increase the value of the firm.

Keywords: Economic, Environmental, Social, sustainability reporting, Firm Value

I. Introduction

Sustainability reporting (SR) is a new phenomenon in research nowadays due to the pressure on environmental resources. SR is a new paradigm shift that is not only related to disclosure but also integrates with the communication process between companies and stakeholders (Bakti & Nengzih, 2023). This process provides stakeholders with an opportunity to determine if the company has taken their interests into account when making decisions. A sustainability report will disclose how non-financial issues such as; employee job satisfaction and performance, external stakeholder’s position, and climate change contribute towards value creation. Corporate governance disclosure is a paramount factor explored by managers to enhance firm value (Fatma & Chouaibi, 2021).

SR is to convey to the public both the transparency and accountability of the firm in the conduct of its affairs (Makhdalena, 2012). A growing number of investment professionals are starting to pay attention to non-financial business performance as they become aware that profitability alone in itself is an insufficient metric for measuring a company’s long-term growth potential. By taking into account environmental considerations in addition to economic, strategic, and operational factors, business transparency is increased, risk management is strengthened and stakeholder involvement is enhanced. Major corporate ethical disasters impacting the environment, human resources, and the community have heightened the demand for public firms to voluntarily carried sustainability reporting of operating activities to stakeholders. There is also advocacy that sustainability reporting should reflect in the internal organizational processes of companies to enhance its authenticity (Herschovis, et al, 2009).

Firm value (FV) is the perception of a company by investors and is usually associated with the prices of stock in the market (Makhdalena, 2012). Fatma and Chouaibi (2021) affirmed that FV creates a benchmark for investors through a bumper rate of return to investors for potential investors. Fama and French (1998) asserted that the value of a company also depends on the future income of the company, therefore information about the success of the company in terms of profitability will greatly influence the value of the company, in addition, it will also be a reflection of the company`s share price. Stakeholders who are used to making decisions based on financial statements are beginning to question the relevance of the traditional measurement of firm value and performance. Therefore, the idea emerged that a firm’s overall performance may be better analyzed when we consider both financial events and non-financial events side-by-side with the assumption that a correlation between the two helps the investor make better decisions. SR permits capital market participants to more precisely assess firms’ financial forecasts and risk profiles, potentially leading to higher share prices and higher firm value (Makhdalena, 2012).