Effects of Sustainability Reporting on the Market Value of Listed Environmentally Sensitive Companies in Nigeria

Effects of Sustainability Reporting on the Market Value of Listed Environmentally Sensitive Companies in Nigeria

Azeez Nurudeen. O¹, Grace, N. Ofoegbu², Dr. Joel Kanyi Tivde³

^1,2Department of Accountancy, University of Nigeria, Nsukka, Enugu Campus

³Department of Accounting, University of Mkar, Mkar, Nigeria

DOI: https://dx.doi.org/10.47772/IJRISS.2025.90500099

Received: 24 April 2025; Accepted: 28 April 2025; Published: 31 May 2025

ABSTRACT

The study investigated the effect of sustainability reporting on market value of environmentally sensitive companies listed in Nigeria. Data from the annual reports of 46 such companies spanning from 2017 to 2022 were analyzed. Tobin’s Q was employed as a proxy for market value, while sustainability reporting was characterized by economic, environmental, social, and aggregate sustainability indicators. The study employed rigorous statistical techniques including Pooled Ordinary Least Square regression (POLS), panel fixed and random effect regression, and feasible generalized least square regressions (FGLS) for data analysis. Results revealed that economic sustainability reporting exhibited a statistically significant positive effect on the market value of listed environmentally sensitive companies in Nigeria. Conversely environmental and aggregate sustainability reporting demonstrated a significant negative association with market value. However, social sustainability reporting showed a positive but statistically insignificant effect on market value. Based on these findings, the study advocates for managerial efforts to enhance economic sustainability reporting by integrating sustainability disclosure into corporate business models and strategies. Additionally, it calls for the formulation of robust policies aimed at effectively managing economic, environmental, and social dimensions to mitigate environmental challenges and augment market value. The study further recommended a comprehensive inclusion of all business transaction costs in financial reporting to enhance market value, fostering positive stakeholder relationships with host communities, suppliers, and employees, as well as the incorporation of the Global Reporting Initiative (GRI) content index in annual reports or sustainability disclosures to shape investor perceptions of future profitability and consequently elevate market value.

Keywords:  Sustainability Reporting, Market Value, Environmentally Sensitive companies, Social Sustainability, Economic Sustainability

INTRODUCTION

Nigeria is endowed with crude oil and other natural resources and as such, the Nigerian economy is heavily relied upon the environmentally sensitive firms such as agriculture, oil and gas, constructions/real estates, health care, industrial goods etc. whose activities usually result to environmental hazard that poses threat on both the present and the generation yet unborn. This is evidenced by the series of unrest between the host communities and these companies. Their activities in most cases had left a balance sheet of ecological disaster to the various communities where they operate. Closely related to this is the issue of global adverse climatic change which has been one of the problems facing the entire universe today. Hence, issues such as air and water pollution, depletion of the ozone layer, desertification, loss of habitat, waste materials, the increased rate of workers layoff, work related hazard, stress and the current financial and economic crunch etc. has gained prominence and therefore been a source of concern to both government and the society at large (Dutta & Bose, 2008).

To bring these problems under control therefore, it has become pertinent to put in place a sustainability culture in business. By this, business organizations are expected by the global markets to give a report that included their economic, social, and environmental consequences. Beside the traditional financial statements that focus on profit and financial position (Dibia & Onwuchekwa, 2015).

Investors and other stakeholders in Nigeria and beyond today, demand holistic view of business through corporate/sustainability reporting. Stakeholders want information that will enable them to effectively assess the total economic value of an organization. They needed to have more detailed information about the present and the expected future rather than just the past economic situation of the company, the public want to know through disclosure, which company it can trust and more importantly, which it cannot. Unfortunately, the information that would enable investors to assess all the significant risks of firm’s activities are missing from the conventional corporate report (Lubber & Moffat, 2010). There have been increasing concerns that existing system of corporate reporting lack transparency and no longer provide all the information stakeholders need to assess corporate performance and value. Several studies have highlighted criticisms and limitations of the existing financial reporting model (Gatimbu & Waswire, 2016; Feyitimi, 2014; Thiagarajab & Baul, 2014).

Other researchers have however, argued that partaking in such a report required cost thereby increasing company’s expenditure and reducing the level profit generation, depriving the shareholders of their core objective of wealth maximization. Likewise, the noble award winner, Friedman (1974) claimed that “CRS is mere waste of shareholders” money, a position that has generated a lot of debate on the usefulness of such reports. Researchers have however, empirically argued that, positive effect may exist between sustainability reporting and performance of firms but this has shown different result among countries, sectors, and firms. Besides this, when one takes a look at the extent to which sustainability reporting have gone especially in Nigeria and other emerging economies. Sobhani, Zainuddin and Amran (2011) explained that corporate sustainability disclosure is still lagging. More so, sustainability reporting practices is still voluntary, and the extent of disclosure is still very low especially in Nigeria. Corporate entities in Nigeria report sustainability issues in different ways, according to different reporting standards, leading to different types of reports. All these have made researchers to establish a link between sustainability reporting practices and firms’ performance to be inconclusive in financial reports.

In addition, majority of the studies that have so far been conducted on this topic are based on the aggregate sectors of the economy, combining both the environmentally sensitive and non-environmentally sensitive companies whose activities have by far more negative impacts on their host communities.

Nonetheless, researchers around the world have generally use both the accounting base measure as well as market-based indicators to measure the performance of companies. This current research observes that, majority of the studies that have been conducted on this topic were on the relationship between sustainability reporting and profitability, using accounting-based measures of performance which are considered as previous reflecting. They largely connected sustainability to backward looking financial profitability rather than forward looking. More so, Joseph (2016) revealed that research findings have no consensus on whether firm can maximize their value if they implement sustainability reporting. Thus, whether reporting on sustainability disclosure is value relevant remains relatively unaddressed in the academic literature.

The current research adopted market-based measures of performance, to examine the effect of sustainability reporting on market value of listed environmentally sensitive companies in Nigeria.

Statement of Hypotheses

H01: Economic sustainability disclosure has no significant effect on the market value of listed environmentally sensitive companies in Nigeria.

H02: Environmental sustainability disclosure has no significant effect on the market value of listed environmentally sensitive companies in Nigeria.

H03: Social sustainability reporting has no significant effect on the market value of listed environmentally sensitive companies in Nigeria.

H04: Aggregate sustainability disclosure index has no significant effect on the market value of listed environmentally sensitive companies in Nigeria.

LITERATURE REVIEW

Conceptual Framework

Sustainability Reporting

Sustainability reporting does not lend itself to any easy description because the concept is used in relation to firm’s performance regarding environmental social and economic aspect. The phrase, which is also used interchangeably with corporate social reporting, social accounting, triple bottom line accounting, social and environmental accounting, corporate social responsibility reporting, and non-financial reporting, first appeared approximately forty years ago (Asaolu, Agboola, Ayoola & Salawu, 2011). It is a general term used to describe a company’s reports on its economic, social, and environmental performance, it has been used synonymously with corporate responsibility reporting, sustainable development reporting, and triple bottom line reporting, however, the terms are more and more becoming specific in meaning and therefore subsets of sustainability reporting (KPMG, 2008).

 sustainability reporting according to Schaltegger (2004), is ‘a subset of accounting and reporting that deals with activities, methods, and systems to record, analyze, and report, firstly, environmentally, and socially induced financial impacts and secondly, ecological, and social impacts of a defined economic system (for instance; a company, production site, nation, and so on). Thirdly, sustainability reporting deals with the measurement, analysis and communication of interaction and links between social, environment and economic issues that constitute the three dimension of sustainability reporting.’

Sustainability integrated Guidelines for Management (The SIGMA Project 2003) in Stefan Schaltegger and Marcus Wagner, (2008) defined sustainability reporting as the ‘generation, analysis, and use of monetized environmental and socially related information to improve corporate environmental, social, and economic performance.’

One of the more useful definitions of sustainability reporting includes that given by the Global Reporting Initiative (GRI). According to GRI (2011), ‘sustainability reporting is the practice of measuring, disclosing and being accountable to internal and external stakeholders for organizational performance towards the goals of sustainable developments.’

Therefore, sustainability reporting can be summed up to mean a sub-category of non-financial information which gives a report on a company’s economic, social and environmental aspects of the various activities carried out by them.

One concept that could be associated with sustainability reporting is sustainable development which set a pace for sustainability accounting and reporting. Going by definition, ‘World Commission on Environment and Development (1987) in Bell and Morse (2008) and Edwards (2005) defined sustainable development as ‘meeting the need of the present generation without compromising the ability of future generations to meet their own needs’. As sustainability Reporting is closely related to the goal and objectives of sustainable development, its aim is to provide information that comprehensively assesses company performance in a multi-stakeholder environment. Sustainability reports are crucial to investors for two reasons. Firstly, investors are becoming more aware of the environmental and social risks as a significant indicator of business’ efforts to increase corporate governance and improve transparency. And secondly, the social and environmental performances are crucial for social and environmental analysis, since the current financial disclosure do not fully disclose the risk, debts, and returns of businesses.

Different sustainability reporting and performance variables have been used by researchers in accounting and reporting literature. Previous researchers have used different methods of collecting data on sustainability reporting. For instance, Clarkson, Overell and Chappie (2011) used National Pollutant Inventory (NPI), Adams (2004) used the company alpha, Tsoutsoura (2004) used Kinder Lydenberg Domini (KLD), Ghosh (2013) used S&P Indian Index and Barlett (2012) applied Pacific Scoring Index (PSI). Other studies used sustainability variables to depict sustainability reporting. Such studies include Lopez, Garcia and Rodriguez (2007) which used Dow Jones Sustainability Index (DJSI) and Dow Jones Global Index (DJGI), Charlo, Moya and Mufloz (2015) used Spanish Sustainability Index (SSI), Uwuigbe (2012) used Environmental Disclosure Index (EDI) while Nugroho and Arjowo (2014) used Sustainability Reporting Disclosure Index (SRDI).

Due to reliability issues and lack of standardization related to the contents of the corporate sustainability reports (CSR), recent studies have given preference to the use of sustainability indices for identifying companies which are leaders in sustainability performance (Lopez, Garcia & Rodriguez 2007).

This study divided sustainability reporting variables into three sub-sustainability indices which are: environmental index, social index, and economic index. Items reported were coded one (1) and zero (0) otherwise. Content analysis was applied because the content analysis method is’ the most used method of measuring a company’s sustainability disclosure in annual reports’ (Uwuigbe, 2012). In addition, this method was adopted because there are substantial previous literatures on measuring corporate sustainability disclosure using content analysis. Also, it allows corporate sustainability disclosure to be systematically classified and compared, which is useful for determining trends.

Economic Reporting

Economic reporting can be defined as the assessment, evaluation, and communication of the various economic activities aside the profit generation that borders on increased welfare of stakeholders in the economic realm of the organization. According to NSE (2018) guidelines on Sustainability reporting, Economic reporting dimension relates to organization impact in the economic conditions of its major stakeholders and the interaction or relationship with the economic system at the local, national, and global levels. It does merely focus on the financial conditions of the business.

An organization’s financial performance is essential to comprehending its sustainability. Nonetheless, the financial statements typically already include this information. What is however, always underreported but increasingly looked after by users of sustainability reports such as investors is what the organization is contributing to the larger economic system. Also, details of the item’s companies are expected to report on social aspect are contained in Appendix A.

Environmental Reporting

Pan African Climate Justice Alliance (2000) defined environmental reporting as the communication of environmental performance information by an organization to its stakeholders. Such information on environmental performance includes, among others, impacts on the environment, performance in managing those impacts and contribution to ecological and sustainable development. Today, such information is becoming increasingly important to satisfy the expectations of stakeholders like employees, shareholders, the public, regulators, contractors/supplies, customers, and other interested parties, who have varying objectives and expectations, Sustainable consumption and production activities can be reported, such as buying environmentally preferred goods and services like recycled paper and energy efficient devices. According to NSE (2018) guidelines for sustainability reporting, environmental reporting issues should include organization’s impact on the living and non-living natural systems such ecosystem, land, air and water. It divided environmental impacts into two: inputs such as materials, energy, and water as well as outputs such as emission, effluents waste. Details of the item’s companies are expected to report on environmental are contained in the GRI template attached as Appendix A

Social Reporting

Social reporting involves the mapping of the environmental and social risks and their comparison against leading companies and standards. The report serves as a management tool by depicting the situation in the organization (as regarding corporate social responsibility), allowing prioritizing and making decisions based on existing performance and assisting in communicating the story of the organization via internal and external channels, inter alia, as a publicity and marketing tool, to the various stakeholders in the organization.

A social report or a social responsibility report provides an overview of the status of a business organization in relation to areas and issues in the realms of corporate responsibility (environmental-social-economic), based on a predefined set of metrics. This is designated to facilitate the review of the performance of the organization in relation to a given period, prior years, and to compare its responsible conduct against that of comparable companies.

According to Gray, Owen and Maunders (1978), Social accounting and reporting (also known as social accounting and auditing, social accountability, social and environmental accounting, corporate social reporting, corporate social responsibility reporting, non-financial reporting or accounting) is the process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large.

Social accounting emphasizes the notion of corporate accountability, (Crowther, 2000) defined social reporting in this sense as an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behavior, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques. Similarly, Armstrong and Green (2012) noted that it is an important step in helping companies independently develop CSR programs which are shown to be much more effective than government mandated CRS. Also, details of the item’s companies are expected to report on social aspect are contained in appendix A.

Market Value

Market value is the companies worth based on a total value of its outstanding share in a market, which is market capitalization. Market value is the price an asset would fetch in the marketplace, or the value that the investment community gives to a particular equity or business. Market value is also commonly used to refer to the market capitalization of a publicly traded company and is calculated by multiplying the number of its outstanding shares by the current share price.

A company’s market value is a good indication of investors’ perceptions about its business prospects. Shareholders will only invest surplus funds in forms with extraordinary performance. This is because, market-based valuation (Stock Price) of companies will be pushed by organization performance (Keys and Biggs, 2009; Sudiyatno, Puspitasari & Karkita, 2014).

Determines firm’s value can be complex especially when gaming simulation is utilized in derivation of stock price which constitute weighted average of all other measures. Firm valuation is obtained by different means, each of which is likely to give a figure that varies from that obtained by another measure (Biggs, 2008).

Empirical Review

Economic Sustainability and Market Value.

Anumaka and Chikaodi (2023) investigated how the Economic Sustainability Disclosure Index influences financial performance proxies (return on equity (ROE), return on assets (ROA), and earnings per share (EPS) of a chosen industrial goods sector quoted on the Nigerian Stock Exchange (NSE). They also looked at the impact of economic sustainability reporting on the financial performance of this sector. The Economic Sustainability Disclosure Index, which serves as a stand-in for economic disclosures, was determined using content analytics. For data analysis, correlation random effect models and pooled regression models were employed. The primary finding indicated that the industrial-goods sector’s economic sustainability disclosure index had a substantial negative relationship with return on equity (ROE), a negative but negligible relationship with return on asset (ROA), and a positive but negligible relationship with earnings per share (EPS).

Douye and Gospel (2023) ‘examined the relationship between firm characteristics and economic sustainability performance disclosure’ (ESPD) using data from thirty manufacturing firms in Nigeria over the period 2010 to 2020. According to the results of the regression study of ESPD on independent variables, firm size, firm age, and leverage, some of these variables significantly impacted ESPD, while firm age had an insignificant impact. The study therefore concluded that some firm characteristics are significantly associated with economic sustainability performance disclosure in Nigeria. The insignificant relationship between firm age and ESPD suggests that older manufacturing firms in Nigeria are not much concerned about economic sustainability performance disclosure. Financial reporting regulators in Nigeria should therefore introduce reporting frameworks that will compel disclosure of economic sustainability performance in polluting industries.

Environmental Sustainability and Market Value

Odewale, Akintoye, Salawu and Adegbie (2020), investigates the effect of environmental sustainability on stakeholders’ value of listed manufacturing companies in Nigeria. The study employed survey research method. The instrument used in gathering the primary data was the questionnaire, which was designed in a five-point Likert scale format. 40 listed manufacturing companies were selected for this study; Four hundred (400) copies of questionnaires were purposively administered on the respondents, three hundred and twenty-six (326) copies of questionnaires were completed and returned. The theoretical framework was hinged on stakeholder theory and accountability theory which talked about the relationship between stakeholders and organizations and the need to be accountable. Results gotten from the statistical findings indicated that environmental sustainability has negative non-significant effect on management & employees’ value, negative and significant effect on shareholders’ value, community residents’ value and government/ regulatory agencies’ value. The study recommended that organizations should incorporate stakeholders’ interest in their day-to-day activities. Furthermore, financial statements should go beyond monetary environmental information to include non-monetary environmental information.

Obey and Olawale (2020), assessed the link between environmental sustainability commitment and financial performance of firms listed on the Johannesburg Stock Exchange (JSE). The study was quantitative in nature with a case study research design. The researcher used a longitudinal strategy to gather panel data between 2011 and 2018. All South African companies registered on the JSE Responsible Investment Index comprised the study’s population. 32 companies listed on the Financial Times Stock Exchange’s FTSE/JSE Responsible Investment Index in South Africa made up the sample. To examine the data, the researchers used the panel regression analysis model. In particular, this study employed the Feasible Generalized Least Squares regression model. The dependent variable was financial performance as determined by share price and earnings per share. The independent variables of the study included components of environmental sustainability such as carbon emission reduction and environmental compliance. Control variables such as firm size and liquidity were used in the study. The results showed that earnings per share and share price were favorably and significantly correlated with the reduction of carbon emissions. Findings further exhibited that environmental compliance was positively related to earnings per share and share price. It was concluded that firms can enhance their financial performance from environmental investment as all the hypotheses were supported. This study contributes practically towards shaping environmental policies and it also serves as motivation to listed companies that they can enhance both their profitability and market value from environmental investments.

Theoretical Framework

There are several theories that could be employed to explain the motivation for sustainability reporting, however, the study is guided by Political Economy theory and Stakeholders theory.

 Political-Economy Theory

This theory was developed by Jevans (1871). Political economy has been defined by Deegan (2007) as’ the social, political, and economic framework within which human life takes place.’ The theory of political economy acknowledges the power struggles and conflicts that take place between different groups in society. According to political economy theory, society, politics, and economics are inextricably linked, and it is impossible to conduct a thorough investigation of economic matters without taking into account the institutional, social, and political context in which economic activity occurs. t is maintained that a researcher can better examine broader (societal) factors that affect how an organization functions and what information it elects us to divulge if they take political economy into account.

In keeping with the previous argument, Deegan (2007) clarified the importance of accounting from the standpoint of political economics by claiming that the political economic perspective views accounting reports as both socio-political and economic documents. They are a means of creating, maintaining, and legitimizing political and economic structures, arrangements, and ideologies that support the corporation’s private interests. Political economy theory is predicated on the idea that society, politics, and economics are inseparable and that economic events cannot be thoroughly examined without taking into account the institutional, social, and political context in which they take place. A study of political economy allows researchers to contemplate broader issues about the information companies choose to disclose in their annual reports (Kenth & Stewart, 2008).

This theory recognizes that there are conflicts of interest and battles among the different stakeholders in the firm, and that these conflicts cannot be separated. This is the information that sustainability reporting aims to offer.

Stakeholders Theory

According to this theory, proposed in 1984 by Edward Freeman, stakeholders are any group of people who have the potential to influence or be impacted by the accomplishment of the organization’s goals. Thus, Popa Blidisel and Bogdan (2009) ‘maintained that stakeholder’s theory is based on the premise that the stronger the companies’ relationship is with other interest parties, the easier it will be to meet its business objectives.   Stakeholder theory contributes to the corporate sustainability concept by bringing supplementary business arguments as to why companies should work towards sustainable development. Also, Perrini and Tencati (2006) stated that the sustainability of a firm depends on the sustainability of its stakeholder’s relationship; a company must consider and engage not only shareholders, employees and client but also suppliers, public authorities local (or national according to a firm’s size), community and civil society in general, financial partner, and so on.’ This means that the foundation of a more thorough company strategy and the guiding principles of managerial decision-making must be the sustainability of stakeholder relationships.

Adopting this stakeholder perspective entails reconsidering the goals and nature of businesses as well as the managerial strategies that they have chosen. Adopting a more comprehensive and holistic stakeholder framework is the only way to measure the performance of managerial efforts in this relational view of the firms, rather than using a shareholder perspective.. These new evaluation and reporting systems should aim to expand, integrate, and improve the traditional financial-economic approaches to corporate performance measurement, taking stakeholder needs and requirements into due consideration. Companies need the right systems to measure and control their own behavior in order to determine whether they are effectively responding to stakeholder concerns and to communicate and demonstrate the results achieved. (Perrins & Tencati 2006). The stakeholder theory recognizes that, the firm and the society are interdependent and so the firm serves a broader social purpose than its responsibility to only shareholders and managers as proposed by the agency theory.

RESEARCH METHODOLOGY

The Study use ex-post facto research design. The population of the study consists of all 70 firms listed on the floor of the Nigerian Exchange Group (NGX) within the study period, these sectors are mining, Agriculture, Chemicals, Oil and gas, industrial goods and real estate/construction. The study employs rigorous statistical techniques including pooled ordinary least square regression (POLS), panel fixed and random effects regression and feasible generalized least square regression (FULS) for data analysis. Pre and post diagnostic tests such as descriptive statistic, correlation analysis, normality test, unit root test, multicollinearity test, heteroscedasticity test were also used. The sample size of the study is 46 companies representing 66% of the population. Data from the annual reports of 46 sampled firms spanning from 2017 to 2022 were therefore, analyzed. The independent variable is measured using data generated from the GRI which were used to calculate the indexes of economic, environment and social aspect of sustainability reporting. On the other hand, market value proxy by Tobin Q Is the dependent variable for the period. Control variable for the study include firm size, firm age and leverage. The hypotheses formulated were tested at a 5% level of significance. This study adopted the model specified in Gnanaweera and Kunor,(2018) and Ozelik, Ozelik and Gursaka, (2014) which was modified to capture the relevant variables supported with empirical evidence. The model’s functional specification is written as follows.

TOBINSQ_it =α₀+β₁ECOI_it +β₂ENVI_it+ β₃ SOCI_it + β₄FSIZE_it + β₅FAGE_it + β₆TLBTA_it + ƹ_it

TOBINSQ_it = α₀ + β₁SDI_it + β₂FSIZE_it + β₃FAGE_it + β₄TLBTA_it + ƹ_it

Where:

TOBIN’SQ      = Firm Market Value which is measured as market value of Equity + Book Value of Total Debit Divided by Total Asset.

ECOI                   ₌Economic Sustainability reporting indices

ENVI               =Environmental Sustainability reporting indices

SOCI               =Social Sustainability reporting indices

SDI                  =Aggregate sustainability reporting index

FSIZE              =Logarithm of total assets (Firm size)

FAGE              =Firm age (the number of years since listing)

TLBTA             =Total liabilities divided by total assets (Leverage)

β₀                     = Intercept estimates

β_{1 – 6}                      = Coefficient of the Independent Variables

e                      = error term.

i                       = Firm observation

t                       = Time observation

Table 1. Summary of Operational Definitions of research Variables

Source: Researcher’s Compilation (2024)

RESULTS AND DISCUSSIONS

Table 2: Descriptive Statistics

Source: Author computation (2024) using STATA version 15

Above is the table of descriptive statistics. The mean of firm market value (TOB) for the sampled firms within the study period was 1.2025 with 0.9912 as the standard deviation value, it came up with a maximum of 8.99 and a minimum of -0.31. The mean value of Economic sustainability disclosure index (ECOI) is 0.5679, standard deviation 0.1021, a minimum of 0.24, and a maximum of 0.94. Environmental sustainability disclosure index (ENVI) has a mean value 0.3972, standard deviation 0.1837, a minimum of 0.09, and a maximum of 0.97. Social sustainability disclosure index (SOCI) has a mean value 0.4683, standard deviation 0.1781, a minimum of 0.05, and a maximum of 0.93.Aggregate Sustainability disclosure index (SDI) on the other hand came up with mean value of 0.4737, of 0.1372 as value for standard deviation, maximum value of 0.94 0.13 and a minimum of 0.13.

The mean value of the control variable, Firm size (FSIZE) is 7.4498, standard deviation of 0.8151, maximum of 5.38 and a minimum of 5.59. Furthermore, the mean value of firm age (FAGE) is 34.0652, came up with a standard deviation of 12.5349, maximum of 58 and a minimum of 8 years. Also, the mean value of leverage is 62.0059 having a standard deviation of 24.9428, a maximum of 247.85 and a minimum of 15.07.

Table 3: Shapiro-Wilk Test for Normal Data

Source: Author computation (2024) using STATA version 15

According to Table 4.2 above, all of the study variables were chosen from a non-normal population distribution since the Shapiro-Wilk test indicates that the z-statistics are significant at the 1% level. The skewness/kurtosis test for normality also corroborate the non-normal population distribution samples selected.

Table 4.: Correlation Matrices

Table 4. above shows both the Pearson and Spearman correlation matrices for the variables employed in the study to identify the presence of normal distribution variables and multicollinearity problems if any. No serious abnormal distribution problems appear to exist in the variables. The level of correlation among the variables appears to be low, an indication of the absence of multicollinearity problems. The maximum correlation coefficient is 0.6871 (Pearson) and 0.6251 (Spearman) which is less than 0.80. None of the correlations are strong or high enough to warrant a multicollinearity problem.

Table 4.4: Market Value and (EES) sustainability disclosure Regression Model

Note: OLS: ordinary least square; FE: Fixed-Effects regression; RE: Random-Effects regression; FGLS: Feasible Generalized least square: ECOI: Economic sustainability disclosure index; ENVI: : Environmental sustainability disclosure index; SOCI: Social sustainability disclosure index; FSIZE: firm size calculated as log of total asset; FAGE: firm age; LEV: Leverage; VIF: Variance inflation factor; RESET: Ramsey regression equation specification error test; LM: Breusch and pagan Lagrange multiplier.

Note: * is 1% level of significance, ** is 5% level of significance, *** is 10% level of significance. Values in ( ) are P-values

In table4.4,we found that the OLS pooled regression’s R-squared value of 0.0895 meant that the explanatory variables in the models collectively explained roughly 8.95% of the systematic variations in the dependent variable (market value), which was proxied by Tobin’s Q, in the pooled companies between 2017 and 2022. The F-statistic value of 4.41 and its associated P-value of 0.0003 indicates that the OLS regression model overall is statistically significant at a 1% level, hence the regression model is well fitted and useful for statistical inference. We further conduct diagnostic test check for post-regression errors that could validate or invalidate the OLS regression estimate.

DISCUSSION OF FINDINGS

Based on the tested hypotheses, the main conclusions drawn from the study’s findings are documented and examined. The empirical evidence indicated mixed results. Also, only a few findings in the literature disagree with the current viewpoints of this study because it is an extension of previous research.

From the study result findings show that economic sustainability disclosure has a significantly positive effect on market value of quoted environmentally sensitive firms in Nigeria. This outcome implies that an increase by one in economic sustainability disclosures will significantly increase company’s market value. This supports the findings of Ayeni-agbaje, Olaniyi, and Adebayo, (2022) ‘who found a positive significant impact of economic sustainability disclosure on market shares.’ ‘The finding is consistent with the findings of (Aggarwal, 2013; Utami 2015; Hassan & Musa 2022) who also found positive and statistically significant relationship, but contradict the result of Onoh, Kayadi and Ndubuisi (2023), Hussain (2015) who found no significant effect between economic sustainability and market value.’ The result supports legitimacy theory.

Furthermore, the research revealed that environmental sustainability disclosure has a negative statistically significant effect on market value of qouted environmentally sensitive companies in Nigeria. This could be due to less disclosure of environmental issues by the selected companies within the study period.. This result is consistent with Onoh, Kayadi and Ndubuisi (2023); Emeka-Nwokeji & Osisioma, (2019) Aggarwal, 2013, Hussain (2015); Norhasimah (2015), who found though positive but statistically significant effect ‘between environmental sustainability disclosure and market value.’ We contradict Hassan & Musa (2022) who reported no significant effect between environmental sustainability reporting and firm value.

The study also shows that market value is positively and negligibly impacted by social sustainability disclosure. This suggests that as sampled companies increase disclosure of social sustainability issues, their market value (Tobin’s Q) increase though statistically insignificant. The insignificance may be due to less disclosure of social issues by companies. ‘This is consistent with the findings of Aggarwal (2013) who found no significant effect between social sustainability disclosure and market value.’ The outcome is consistent with legitimacy theory. We negate the findings of Hassan & Musa (2022) who reported a positive significant ‘effect of social sustainability reporting on firm value of Nigerian non-financial service firms.’ We also contradict the findings of Emeka-Nwokeji & Osisioma, (2019) who found negative insignificant effect of social sustainability disclosures and firm value of non-financial firms in Nigeria. In addition to Onoh, Kayadi and Ndubuisi (2023) who found negative significant effect of social sustainability reporting and firm value of listed oil and gas firms in Nigeria.

The results also showed that market value is significantly impacted negatively by overall sustainability disclosure. ‘The result suggests that an increase in aggregate sustainability disclosure of listed environmentally sensitive companies in Nigeria significantly decreases market value (Tobin’s Q) of listed environmentally sensitive companies in Nigeria. This is consistent with the findings of Garg (2015) and contradicts Emeka-Nwokeji and Osisioma, (2019) who found positive significant effect of aggregate sustainability disclosure index on firm value of non-financial companies in Nigeria.’

CONCLUSION AND RECOMMENDATIONS

Conclusion 

Sustainability reporting drives market value of environmentally sensitive companies in Nigeria. Companies engaged in sustainability reporting seem to be more appealing to stakeholders and long-term investors and hence more sustainable. Sustainability reporting creates value for stakeholders and satisfies the interest of divers’ groups of stakeholders. Particularly, economic as well as social sustainability reporting creates and increases value for shareholders and stakeholders. This is evidenced in the fact that economic and social sustainability reporting exerts positive effect on market value. However, environmental sustainability reporting did not necessarily guarantee increase market value of listed environmentally sensitive companies in Nigeria as evidenced in the results which show that environmental sustainability reporting has negative significant effect on market value. In like manner. Aggregate sustainability reporting did not guarantee increase market value of listed environmentally sensitive companies in Nigeria as seen in the result which revealed that aggregate sustainability reporting has a negative significant effect on market value.

Recommendations

Based on the study findings, we recommend that:

1. The management of listed environmentally sensitive companies in Nigeria improve on economic sustainability reporting through employee productivity, job creation, research and development and incorporate such report as part of their business model and strategy.
2. The management of environmentally sensitive companies in Nigeria examine their operating environments and formulate policies to effectively manage the environmental challenges such as energy conservation, waste management, biodiversity and emission control in order to enhance their market value..
3. The management of environmentally sensitive companies in Nigeria should maintain consistency with socially sustainable activities such as occupational health and safety, training and community development as they contribute positively to their market value and the strength of network with their shareholders.
4. The environmentally sensitive companies in Nigeria that have adopted the GRI standards should continue to report it either in the separate sustainability reporting or in their annual reports. The companies yet to adopt the GRI standards should be encouraged to do so because sustainability disclosure can set a company apart from its competitors.

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