The Impact of Eco-Sustainability Reporting in Financial Statements on the Market Value of Companies in Ivory Coast

The Impact of Eco-Sustainability Reporting in Financial Statements on the Market Value of Companies in Ivory Coast

Adouko Kouah Adjobi Romuald Paulin*, Wang Jianmin., Teye Jonathan

School of Economics and Management, Anhui University of Science and Technology, Huainan, China

*Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2025.905000474

Received: 19 May 2025; Accepted: 24 May 2025; Published: 23 June 2025

ABSTRACT

Environmental issues have become a prominent theme in recent decades in accounting literature. Growing public concern regarding companies’ financial and non-financial performance, particularly related to industrial activities, has led to increased demand for the disclosure and analysis of ecological reports, especially in developed nations. However, there is a lack of research in developing countries, particularly Africa and the Ivory Coast. Thus, this paper seeks to explore the potential impact of eco-sustainability disclosure in financial reports on market value and its effects on the financial and non-financial performance of SMEs in Ivory Coast, considering company characteristics such as size, age, and losses. This study utilizes data from firms listed on the Ivory Coast Stock Exchange. The hypothesis regarding the effects of eco-sustainability disclosure in financial reports on the market value of company attributes was tested with a selection of 35 joint-stock companies from 2011 to 2022. Several conclusions were drawn from this research. It was identified that eco-sustainability disclosures in financial reports influence companies’ financial and non-financial performance. Additionally, these disclosures affect a company’s market value, particularly as indicated by its quality descriptors, including age and losses. However, the study found that eco-sustainability disclosure in financial reports did not influence market value when evaluated against the characteristic of company size.

Keywords: Eco-sustainability, Market value, Company characteristic, financial reports.

INTRODUCTION

A primary concern facing the world today is environmental sustainability. Consequently, there is an increasing awareness of the importance of protecting the environment and conserving natural resources for future generations. With this heightened focus, the role of companies in achieving environmental sustainability has become a critical part of their strategic approach. In line with this, firms are now incorporating details about their environmental performance into their financial statements, a practice known as environmental sustainability disclosure. This concept entails companies disclosing their environmental practices and their effects on the marketplace within their financial reports. Given the current environmental challenges, relying solely on financial disclosures does not fully address the information requirements of investors and stakeholders looking to evaluate company performance and forecast its future. Countries across the globe are increasingly prioritizing environmental issues and their implications for corporate performance and sustainability. This has led to a surge of interest in corporate eco-sustainability disclosure initiatives, both in academia and professional circles, aimed at providing pertinent environmental information to investors and decision-makers, and evolving traditional financial reporting models to encompass all financial and non-financial information for users. This approach allows for a more comprehensive analysis of a company’s success in achieving its economic and environmental objectives. With rapid technological advancements, artificial intelligence has emerged as a vital tool for enhancing environmental sustainability disclosures in financial reporting. AI enables businesses to gather and analyze large amounts of environmental data with remarkable accuracy and efficiency, facilitating the identification of improvement areas while delivering more precise and more reliable information to investors and stakeholders. Financial reporting is mandatory for companies globally, meaning that current non-financial corporate performance reporting, also called corporate sustainability responsibility reporting, must address the effects of practices, strategies, corporate outcomes, and results, and assess the non-financial impacts on stakeholders. Therefore, eco-sustainability disclosures in corporate reports should include detailed information regarding the company’s initiatives in carbon emission reduction, waste management, natural resource utilization, and biodiversity preservation. Such disclosures enhance the company’s image and reputation and contribute to determining its market value. In today’s business landscape, investors and customers are increasingly concerned about the environmental implications of their business relationships. As a result, companies that adhere to and disclose eco-sustainability standards may become more attractive to investors. Conversely, failure to disclose or a lack of commitment to sustainability can decline a company’s credibility and market value. Companies can leverage artificial intelligence to enhance the precision and quality of their environmental disclosures by analyzing environmental trends, forecasting the impacts of various sustainability strategies on corporate environmental performance, boosting disclosure efficiency, automating reporting processes, and minimizing human errors. In this regard, this study aims to explore the connection between environmental sustainability disclosures in financial reports and a company’s market value, as well as how such disclosures affect the decision-making and understanding of investors and consumers regarding the company’s long-term financial performance.

METHODOLOGY AND PREVIOUS LITERATURE

Research Statement

In response to requests from both international bodies and local communities for enhanced information on their environmental and social impacts, companies must disclose how their various activities affect society and the economy. The absence of adequate accounting standards for eco-sustainability reporting has led to negative ramifications in corporate eco-sustainability disclosures, complicating investment decisions for investors. Consequently, these issues have significantly influenced company valuations. Therefore, this study seeks to deepen understanding of the link between eco-sustainability disclosures in financial reporting and company market value, highlighting the role of environmental transparency in fostering trust and enhancing economic value. The following research question was formulated from these considerations: How does eco-sustainability disclosure in financial reports influence a company’s market value regarding its attributes? Additionally, the following sub-questions were crafted for the study:

-Is there a connection between how much environmental sustainability is disclosed in financial reports and market value? How do these disclosures affect the views of investors and stakeholders?

– How do firm characteristics influence the disclosure of environmental sustainability in financial reports? What impact does this have on the company’s market value?

Objectives

This article aims to

1. Examine the impact of eco-sustainability disclosures in financial statements on market value and company attributes like size, age, and losses.
2. Understanding the significance of environmental disclosure for businesses by exploring how companies benefit from revealing their environmental efforts through enhanced reputation and increased investor trust.
3. Assessing how environmental disclosure affects financial performance, focusing on profitability and equity returns.
4. Examining investor feedback to understand how environmental disclosure influences financial market choices and actions.

Importance

This subject can hold significance for the following reasons:

• Improving transparency and accountability. This research advocates for openness and corporate responsibility by highlighting the importance of disclosing environmental practices and their impact on the market. Such transparency could encourage companies to embrace more sustainable methods.
• Enhancing investor awareness. This document aims to assist investors in recognizing the significance of environmental information when making investment choices. Investors can concentrate their investments on businesses dedicated to environmental sustainability.
• Enhance your business success by recognizing the connection between environmental disclosure and market value. Companies can achieve superior financial performance and increased market value by improving their environmental practices.
• Keeping up with global trends. This research aids businesses in remaining up-to-date with global sustainability and social responsibility trends, enhancing their international competitiveness.
• Enhancing the company’s reputation. Organizations that show dedication to environmental sustainability can enhance their standing with customers and investors, increasing brand loyalty and attracting new investors.

Hypothesis

In light of the study questions and the issues discussed earlier, the following hypotheses have been formulated:

Hypothesis 1: The disclosure of eco-sustainability in financial reports affects market value.

Hypothesis 2: Disclosure of eco-sustainability in financial reports affects market value by considering firm characteristics.

This study formulates the subsequent sub-hypotheses:

Eco-sustainability disclosures in financial reports influence market value according to the firm’s size.

The revelation of eco-sustainability in financial statements influences market value depending on the firm’s age.

Reporting eco-sustainability in financial statements affects market value because of company losses.

Methodology and Data Gathering

This study takes a correlative-deductive approach, employing a research design that examines the relationships among independent research variables, affiliates, and intermediaries. It emphasizes eco-sustainability disclosure in financial reports, market value, and corporate characteristics. Here, the independent variable is the disclosure of eco-sustainability, the dependent variable is market value, and corporate characteristics such as size, age, and loss serve as intermediary variables. Additionally, a quantitative method was utilized to assess the effects of various research variables. Secondary data were gathered during the data collection phase, including information from prior research and the financial statements of companies involved in this study, accessible on the Ivory Coast stock exchange (www.isx-iq.net) and the Ivory Coast securities commission (www.isc.gov.iq). Due to its widespread application in tablet data estimation techniques, multiple linear regression models were employed to analyze the data using the statistical software EViews 13. Furthermore, the data were assessed through the micro-square method (OLS).

Sampling and Constraints

The sample includes all shareholding companies listed on the Ivory Coast stock exchange from 2011 to 2022, identifying 110 joint-stock businesses. Specific criteria were established for sample selection: companies need sufficient data for variable calculation during the research phase, must avoid mergers or acquisitions until their data is stable, and should continue operating during the study period. Additionally, financial statements must be easily accessible. Following these guidelines, only 35 joint-stock companies were selected.

Research Variables

The connection among research variables can be illustrated as follows:

Fig. 1 Inter-variable relation

Previous Literature

Numerous field studies have explored the effects of eco-sustainability disclosure, focusing on various aspects such as the link between eco-sustainability disclosure and financial reporting, its influence on corporate market value, and the connection between artificial intelligence and sustainable development (Abdul Haleem, 2017). This research aimed to showcase the level of disclosure of sustainable development practices among Saudi corporations by analyzing the content of reports from a sample of companies on the Ivory Coast stock market. Results indicated that these companies typically disclose their sustainable practices only within annual reports and not in separate documents. Furthermore, the study revealed limited accounting transparency regarding long-term development in these businesses (Shaaban, 2019). This investigation evaluated whether sustainability accounting disclosure enhances corporate value by reviewing the degree of sustainability disclosure and its effect on company value among firms listed in Egypt. Findings highlighted discrepancies across studies regarding the relationship between sustainability performance disclosure, financial performance, and corporate value, with most indicating a positive association between corporate social and environmental liability disclosure and financial health. The results also suggested a favorable relationship between sustainability accounting disclosure and market valuation (Hardiningsih et al., 2020). This study looked into the impact of sustainability disclosure on financial and market performance, focusing on 21 mining companies in Indonesia and 18 in Malaysia through purposeful sampling. The hypotheses were tested using regression analysis supported by Warp PLS. Results demonstrated that environmental and social disclosures significantly influenced asset return, return on equity, price-to-earnings ratio, and Tobin’s Q ratio in both countries. However, no considerable financial and market performance discrepancies were found. The study concluded that positive sustainability disclosures enhance financial performance and boost stakeholder and regulator confidence in decision-making, thereby increasing company value (Al-Sahlawi et al., 2021). Investigating firms listed on the Saudi financial market, this study aimed to assess how eco-sustainability disclosure affects stock returns. It was discovered that the relationship between such disclosure and equity returns was weak due to budget constraints, indicating a significant adverse effect of eco-sustainability disclosures on equity returns, as investors often overlook environmental information. The adverse impact was notably pronounced in companies with limited financial resources (Khalifa & Ibrahim, 2023). Finally, this study analyzed the content of annual reports from companies within the Egyptian sustainability index from 2018 to 2020 to understand how eco-sustainable practice disclosures influence investor decision-making variables like share price, trading volume, earnings per share, and market value-to-book ratio. The findings indicated a notable increase in eco-sustainability disclosure levels among companies in the Egyptian sustainability index (Lambropoulos et al., 2024). Additionally, this research examined the interplay between artificial intelligence and sustainable development. Addressing global environmental and social challenges and achieving the Sustainable Development Goals requires leveraging artificial intelligence and the internet to develop data-driven systems and create more efficient, intelligent, and self-sufficient infrastructures. Using a descriptive statistical approach, the study analyzed 9,182 publications from Scopus and the Web of Science (WoS) published between 1989 and 2022. It concluded that artificial intelligence is crucial in promoting sustainability and achieving sustainable development objectives.

Foundations of Theoretical Eco-sustainability Disclosure in Financial Statements

Disclosure and Eco-sustainability

Disclosure is an established accounting practice with roots tracing the field’s inception. As accounting has progressed and is seen as an information system, the significance of disclosure has intensified. Historically, accounting’s focus has shifted from simply bookkeeping and protecting owners’ interests to providing crucial information supporting all stakeholders’ decision-making (Hilal, 2017). Eco-sustainability disclosure involves evaluating and sharing a balanced array of financial, non-financial, descriptive, and quantitative information about a company’s environmental, economic, and social performance. While optional, this process assesses the company’s current state across these dimensions for the reporting period. It uses financial and non-financial data to communicate its sustainability efforts to various internal and external stakeholders (Abdul-Hadi, 2023). Accounting for sustainable activities is a critical two-way communication tool, reflecting how much companies prioritize sustainable development and its impact on their operations. It also offers a means for financial report users to gauge the company’s efforts toward achieving social and environmental sustainability (Maligi, 2015, p. 7). Many nations have utilized eco-sustainability as a basis for environmental conservation for present and future generations. It is no longer just developed nations that address environmental and social issues. Numerous local and international organizations focused on these concerns are now looking at industrialized countries, where industries significantly contribute to environmental pollution and depletion of natural resources. The Brundtland report (1987) introduced the concept of sustainability, defining it as development that satisfies today’s needs without compromising the ability of future generations to meet theirs (Khalaf et al., 2023). Even with the increasing global emphasis on sustainability and reporting, a universally accepted definition remains elusive. The Global Reporting Initiative (GRI) characterizes sustainability as reporting that allows businesses to set objectives, measure performance, and implement changes for greater sustainability while disclosing the company’s positive and negative effects on the environment, society, and economy (Mahmood et al., 2023). Environmental information must be disclosed in financial reports, encompassing the company’s environmental management performance and financial implications. Environmental performance disclosure has evolved from being a single item in annual reports to creating independent environmental reports produced by companies (Hilal, 2017). Past studies indicate that sustainability reports reflect a company’s disclosure of critical environmental, social, and economic issues pertinent to sustainability. These reports provide ongoing performance information about the company (Ghallab, 2011, p.96). The GRI defines a sustainability report as presenting open disclosures, including economic, environmental, and social performance data (Surjati & Yanti, 2023). Such reports illustrate the company’s commitment to sustainable business practices and its accountability towards the long-term development of both internal and external stakeholders (Bhatia & Tuli, 2017). They offer a global framework in a consistent language that assesses the transparency of the company’s economic and social actions and ambitions. Additionally, sustainability reports can align with the environmental principle of sustainable development (Surjati & Yanti, 2023). The triple bottom line (TBL) in sustainability reporting emphasizes balancing profit, people, and the planet. Consequently, companies are expected to pursue profit and contribute to community and environmental betterment (Ariastini & Semara, 2019). This concept advocates for placing stakeholder interests above those of shareholders since empowering people and sustaining the planet is projected to yield profits for management and investors (Nurhidayat et al., 2020). Some researchers have advanced the TBL concept, focusing stakeholders’ interests in three areas: profit, which seeks to maximize earnings while promoting fair trade and ethical business practices; individuals, prioritizing workforce interests, labor rights, fair wages, and reasonable working conditions (Nurhidayat et al., 2020). The planetary perspective stresses the importance of environmental protection, emphasizing the preservation of non-renewable resources, pollution prevention, waste recycling, reprocessing industrial waste for safe environmental returns, and energy conservation (Gunawan & Sjarief, 2022). Thus, profit, individuals, and the environment are essential for implementing sustainability reports or disclosures. 

Categories of Information in Corporate Sustainability Reports

Previous studies have categorized disclosures into mandated disclosures regarding corporate actions’ social and environmental impacts and voluntary reports. These voluntary reports, increasingly common in recent years, are also known as Corporate Sustainability Reports (CSR). International and national regulations from authorities such as the European Union and the United Nations have significantly influenced the creation of these reports, despite them being referred to in various ways. Consequently, there has been a shift toward producing mandatory reports instead of optional ones (Alhaj & Noorhayati Mansor, 2023). However, companies can positively influence their overall image and reputation by generating voluntary reports on their environmental practices and sustainable development. This voluntary aspect can lead to an incomplete representation of the impact of the company’s actions. Some researchers recommend stronger regulation of voluntary report content to enhance comparability and accountability for providing accurate information (Aldrugi & Abdo, 2014; Nickell & Roberts, 2014). In this framework, corporate sustainability reports should outline the measures companies are taking to mitigate their negative environmental impacts while highlighting future goals and the significance of voluntary environmental reporting. Numerous non-governmental organizations (NGOs) work on creating comprehensive guidelines for sustainable environmental reporting, urging companies to disclose various social and environmental issues. Prominent organizations in this field include the SRG sustainability reporting guidance, the Global Reporting Initiative (GRI), and Standards International, which has established a set of ISO standards (Alhaj & Noorhayati Mansor, 2023). Researchers argue that corporate transparency concerning their environmental and social policies, alongside economic activities, benefits various stakeholders, enhances the company’s reputation, and adds value. Despite the growing demand from stakeholders for sustainability information, most corporations disclose their sustainability performance voluntarily. The impact of this disclosure on corporate value can vary significantly, as the level of disclosure differs from one firm to another.

Examining the Link Between Eco-Sustainability Disclosure and Corporate Value:

Stakeholder theory suggests various stakeholders possess different economic, environmental, and social interests. Effectively balancing these stakeholders’ ambitions is crucial for a company’s success. Companies often produce sustainability reports to address these varied objectives. Environmental disclosures aim to enhance transparency, bolster brand value, improve reputation and legitimacy, increase competitiveness, motivate employees, boost information credibility, and maintain operational control (Shaaban, 2019). However, the recent influx of corporate sustainability reports does not ensure sufficient disclosure and tends to reflect relative importance. The term “relative importance” in sustainability reports highlights practices that influence a company’s environmental and social performance, affecting stakeholder assessments and decisions. Ortar (2016) suggests businesses should identify, engage with, and disclose their most pressing sustainability challenges. Discrepancies in sustainability disclosure standards stem from the debate over whether superior environmental and social performance yields financial benefits for businesses. According to stakeholder theory, corporate social responsibility can build and strengthen trust with various parties, significantly impacting the company’s long-term success (Brook & Oikonomou, 2018). Conversely, some scholars argue that corporate social and environmental responsibilities impose an inequitable burden on shareholders, as their costs may exceed potential benefits, risking resource misallocation and diminishing company value. Traditionally, the primary objective of companies is to maximize shareholder value, while other stakeholders have different goals and priorities (Li et al., 2018). Consequently, companies that provide more comprehensive sustainability disclosures may attract shareholders and other key stakeholders. Enhancing relationships with stakeholders can lead to increased profitability and long-term value. Furthermore, disclosing sustainability practices enriches financial statements with non-financial information, bridging knowledge gaps between companies and their connected parties. This added, varied information enhances stock price information and boosts market value (Shaaban, 2019). Thus, corporate sustainability strategies enhance a company’s long-term value by improving stakeholder satisfaction and communication. Corporate sustainability disclosure positively influences a company’s brand, image, financial performance, risk mitigation, and value enhancement. While firms invest in social responsibility and environmental initiatives to sustain their operations, these efforts can incur various expenses. Kim et al. (2018) project that the benefits of business sustainability actions will outweigh their associated costs.

The influence of company attributes on the market valuation of firms

Features differ, requiring unique disclosures for each organization. Corporate characteristics influence companies’ environmental disclosures (Isnalita & Romadhon, 2018). This study explores various factors influencing a business’s market value, including size, age, and losses.

The Influence of Firm Attributes on Corporate Market Value

Size

A company’s size plays a crucial role in determining its market value. Consequently, small businesses often contend with information asymmetry (Santosa, 2020). Investing in these smaller firms carries more risk than larger corporations, leading investors to seek higher returns. Additionally, the issue of informational imbalances is further intensified within small-scale enterprises. In contrast, larger companies face shareholder oversight, making them less affected by information asymmetry (Baqlia & Akoor, 2018). Recent research indicates that a company’s size significantly influences its sustainability efforts. Larger companies are more inclined to disclose their social and environmental performance (Al-Shahri & Al-Asimy, 2023). Thus, major enterprises prioritizing eco-sustainability often enjoy a positive social image among stakeholders due to their ample resources, enabling them to tackle environmental issues. Larger corporations face heightened public scrutiny and are typically more interested in environmental sustainability (Quraishy & Zarkoon, 2020). Furthermore, a company’s size also impacts its level of sustainability disclosure; large organizations benefit from lower costs associated with compiling and publishing reports compared to smaller firms with limited expertise (Al-Shahri & Al-Asimy, 2023). Therefore, a company’s scale significantly impacts its environmental sustainability. The larger the firm and its potential negative environmental impact, the more it is required to disclose environmental information to meet stakeholder expectations (Al-Quraishy, 2021).

Age

Numerous studies have thoroughly examined the link between age and corporate performance. Both theoretical and empirical findings indicate uncertainty surrounding this relationship. Additionally, older companies often outperform their younger counterparts because of their extensive industry experience, known as “learning through practice.” Haykir and Çelik (2018) suggest that older organizations may struggle to adapt to new changes, resulting in reduced performance. Conversely, another study indicates that companies’ interest in environmental disclosure increases as they age. Established firms develop skills in processing techniques and lowering emissions, motivating them to share their environmental information. Long-term players in the market generally contribute significantly to environmental and social initiatives and are more adept at reporting and disclosing environmental data (Al-Shahri & Al-Asimy, 2023). Companies engaged in environmentally focused, long-term activities have accumulated experience in reducing emission rates, especially with the establishment of environmental liability committees that monitor compliance with environmental laws. Consequently, these practices often lead organizations to disclose environmental information voluntarily (Shama, 2018).

Losses

In accounting, loss refers to the negative value of income, meaning a corporation experiences a net loss when its expenses exceed its revenues over a specific period (CFI, 2024). Indriani et al. (2019: 102-103) highlight that understanding a company’s impact on investor decisions and loss disclosures is crucial. Additionally, loss is a key factor in assessing company performance. Consequently, businesses must work diligently to cut costs, enhance sales, increase profits, and improve financial outcomes (Sinta et al., 2023, p. 23). Experts suggest decision-makers require easily accessible, accurate, disaggregated, pertinent data and statistics to advance sustainable development goals. The information revolution has facilitated enhancing data collection and analysis techniques that benefit society, shape long-term policies, and promote environmental sustainability. In summary, artificial intelligence could foster environmental sustainability by improving resource efficiency, reducing waste and emissions, and supporting climate change mitigation initiatives.

The Contribution of AI to Eco-sustainability

Given the rising environmental challenges, developing innovative solutions that foster sustainability and preserve natural resources is essential. In this light, AI can be leveraged to meet environmental sustainability objectives such as enhancing resource efficiency, diminishing emissions, and improving waste management. Additionally, AI holds great promise for bolstering environmental conservation and protection efforts for future generations. Consequently, the synergy between AI and sustainability represents a crucial advance toward a more sustainable and balanced future (Vinusea et al., 2020). Embracing and incorporating innovations across societal, environmental, and industrial domains is vital for achieving sustainable development goals. AI stands out as a leading technology with the potential to significantly impact various sectors (Lampropoulos et al., 2024). This multidisciplinary field focuses on creating intelligent agents that mimic human behavior and actions, exhibit human-like intelligence in executing specific tasks autonomously, and make decisions that require human reasoning without direct human involvement (Russell, 2010). The primary aim of AI is to enhance the capabilities of systems and processes in learning, communication, reasoning, perception, rationality, adaptability, and environmental awareness. AI is becoming increasingly vital for achieving eco-sustainability with its myriad applications that boost efficiency and minimize environmental impact. As noted by Vinusea et al. (2020), AI significantly contributes to environmental sustainability in the following ways:

1. Natural resource management: AI aids in managing natural resources such as water and energy by analyzing extensive data, predicting resource demand, optimizing allocation, and alleviating poverty.
2. Smart farming: By leveraging technologies like computer vision and data analysis, AI enhances farming productivity by offering tailored recommendations for using water, fertilizers, and pesticides, ultimately minimizing environmental harm.
3. Pollution management: AI monitors air and water quality by analyzing real-time sensor data. These assessments facilitate prompt decisions to reduce pollution.
4. Improved energy efficiency: AI systems optimize energy consumption in smart buildings by predicting thermal and electrical needs and automatically adjusting systems for peak performance.
5. Waste management: Artificial intelligence (AI) enhances recycling by accurately and swiftly classifying waste, increasing reuse efficiency, and reducing landfill waste.
6. Natural disaster forecasting: Artificial intelligence evaluates weather patterns and geographical data to predict natural disasters like floods and droughts. These methods enhance preparedness and reduce possible damage.
7. Environmental data analysis: AI can process large amounts of environmental data to enhance our understanding of climate change and improve environmental policy.

Assessment of Study Variables

To meet research goals, quantitative models have been created to assess how eco-sustainability disclosures in financial reports affect market value, treating the latter as a dependent variable. This analysis accounts for company characteristics as an intermediary variable. It incorporates several control variables to fine-tune the relationships among these variables using the multiple linear regression equations outlined below:

Where

MS_t.i Market value. Shares in the price of the year-end market shares measure it.

SDI_t.i Eco-sustainability

FSIZE_t.i company size. It represents the natural algorithm of the company’s assets.

Company age refers to the elapsed time in years since the company was indexed on the Iraqi stock exchange up to the present. of years from indexing in the Iraqi stock exchange to the present.

LOSS_t.i Loss. Binary variable that is (1) in the case of losing. Otherwise, it is (0).

ROA_t.i Return on assets: equals net profit/total assets.

ROE_t.i Return on equity: equals net profit/ equity.

LEV_t.i Leverage: Equal to gross liabilities/total assets

CFO_t.i Operating cash flow: equal to net operating cash flow/total inventory

FXR_t.i Fixed asset ratio: Fixed asset equals the book value/total asset

LIQ_t.i Liquidity ratio: equal to current assets/current liabilities

CG_t.i Capital growth: Binary variable (1) in case of capital increase. Otherwise, it is (0)

ε_t.i Error value: Remainders

Descriptive Analysis

Table 1 below presents the descriptive statistics for 35 companies over 12 years, from 2012 to 2023, resulting in 420 observations for each variable.

Table 1: Summary statistics for research variables

Table (1) above shows that;

1. During the search period, the average market value index (MS) was 10.113, with the highest recorded value at 100 and the lowest at 0.18. The standard deviation stood at 16.626.
2. The average tax ratio (SDI) throughout the search period was 0.520, with a maximum of 0.766 and a minimum of 0.286, accompanied by a standard deviation of 0.129.
3. The average value of the company’s size variable (FSIZE) observed during the search period was 22.413, while the maximum and minimum values were 27.050 and 19.245, respectively. The standard deviation stood at 1.378.
4. During the search period, the company’s average age (AGE) was 33,753, with a maximum of 76 and a minimum of 10, resulting in a standard deviation 13,571.
5. During the search period, the average value of the loss variable was 0.352, with a maximum of 1.000 and a minimum of 0.000, alongside a standard deviation of 0.478.

Outcomes of Hypothesis Verification

Testing Hypothesis 1

The effect of eco-sustainability disclosures in financial statements on market value is analyzed. The validity of the hypotheses is confirmed using the multiple linear regression model shown in the table below.

Table 2: Validation of Hypothesis 1

The statistical analysis in Table 2 demonstrates the model’s significance, as the probability value for the F-statistic test is under 0.05, specifically 0.000. This result indicates that the model is viable for testing and that the findings are reliable. Additionally, the Durbin-Watson statistic sits at 1.675, which is optimal. This value, falling between 1.5 and 2.5, reflects the absence of self-correlation or spurious regression within the data analyzed. Furthermore, the R-squared value is 0.332, signifying that the independent variables can explain 33% of the variance in the dependent variable. The adjusted R-squared stands at 0.312, meaning the independent variable accounts for 31% of the variance, while 69% remains influenced by factors not included in the model. Significantly, none of the variance inflation factors (VIF) exceeded 10, with the highest recorded at 2.329, indicating no issues with the linear relationships among the independent variables utilized in this analysis.

Analysis of Hypothesis Results

The statistical analysis results indicate that the independent variable’s probability value (Prob), which is the disclosure of eco-sustainability in financial reports, is less than 0.05, specifically 0.000. This finding supports the hypothesis that eco-sustainability disclosure in financial reports impacts market value. Consequently, we conclude that increased disclosure of eco-sustainability in these companies’ final reports correlates with higher share prices.

Verification of Hypothesis 2

The effect of eco-sustainability disclosure in financial reports on market value is based on company characteristics such as size, age, and loss. To verify the assumptions made, multiple linear regression models were employed, as shown in Table 3 below:

Table 3: Verification of Hypothesis 2

The statistical analysis in Table 3 demonstrates the model’s significance, with a probability value for the F-statistic test below 0.05, specifically at 0.000. This indicates the model is appropriate for testing and that the findings are reliable. The Durbin-Watson statistic is also reported at 1.542, within the acceptable range of 2.5 to 1.5, suggesting no autocorrelation or spurious regression issues in the provided time series values. Moreover, the table indicates an R-squared value of 0.391, reflecting a 39% explanatory power between the independent and dependent variables, while the adjusted R-squared value is 0.368, suggesting that the independent variable accounts for 37% of the influence on the dependent variable, leaving 63% attributable to other non-model factors.

Interpretation of Results for Sub-hypothesis 1 (Main Hypothesis 2)

Statistical analysis indicates that the probability value (Prob) for the independent variable, eco-sustainability disclosure in financial reports, about company characteristics, primarily size, is greater than 0.05, specifically at 0.172. This suggests that this sub-hypothesis is invalid, meaning there is no effect of eco-sustainability disclosure in financial reports on market value concerning company characteristics, particularly size.

Analysis of the Outcomes for Hypothesis 2:

Statistical research shows that the probability value (Prob) for eco-sustainability disclosure in financial reports, based on company characteristics like age, is less than 0.05. Specifically, the value was 0.000. This finding supports the idea that eco-sustainability disclosure in financial reports affects market value concerning company attributes, especially age.

Analysis of Sub-hypothesis 2 Results:

Statistical research indicates that the probability value (Prob) for the independent variable, eco-sustainability disclosure in financial reports, related to corporate characteristics, mainly losses, is below 0.05, specifically at 0.002. This finding reinforces that eco-sustainability disclosure in financial reports influences market value regarding corporate characteristics, particularly losses.

CONCLUSIONS

The conclusions outlined below are based on the discussions and analyses detailed above:

1. Sustainability reports should be presented as offering numerous benefits. These benefits bolster the company’s reputation. As a result, this positive perception can enhance the share price in the financial market, ease access to bank credit, improve operational efficiency by minimizing environmental costs and damages from activities, and foster a constructive relationship with the government, aiding in resolving legal issues or disputes.
2. Revealing eco-sustainability practices generates financial value for the company, significantly boosts its reputation, and draws in new investments.
3. Eco-sustainability practices have become increasingly significant across economic, environmental, and social dimensions. They align social and environmental objectives with economic aims to enhance human welfare in the present, without jeopardizing the capabilities of future generations.
4. Despite ongoing attempts to motivate companies to adopt and report on sustainability practices, there is currently no legal requirement for businesses to do so. This absence of obligation restricts the influence and efficacy of these practices, as companies are not mandated to address the pertinent environmental, social, and economic consequences. Thus, proposing a suitable international standard to implement these initiatives and guidelines effectively is crucial, ensuring environmental and societal protection.
5. Statistical analysis revealed that eco-sustainability disclosures in financial reports affect market value.
6. Statistical analysis showed a notable effect of eco-sustainability disclosures in financial reports on a company’s market value, especially regarding its age and losses.
7. Statistical analysis revealed that disclosing eco-sustainability in financial reports did not impact the company’s market value, regardless of its qualities, especially size.

RECOMMENDATIONS

Based on the findings and results discussed above, this paper presents the following recommendations:

1. 1. Relevant authorities ought to increase companies’ understanding of the significance of eco-sustainability practices by developing and releasing sustainability reports, given that these actions yield social, environmental, and economic advantages.
2. Future research should include additional companies across various sectors and industries, allowing for more comprehensive findings encompassing different geographical regions. This approach enables a comparison among companies worldwide to determine if there are regional variations in the effects of sustainability disclosure.
3. It is essential to analyze factors influencing the connection between environmental disclosure and market value, including company size, government policies, and market maturity.
4. To understand the government’s role, analyzing the effects of policies and sustainability laws on corporate behavior and market value is essential. This includes comparing the influence of disclosure requirements in nations with stringent environmental regulations versus those with more lenient regulations.
5. Developing nations lacking research in this area should pursue additional studies on eco-sustainability disclosure, especially in light of minimal support from non-governmental organizations and the media. This could enhance public awareness and motivate companies to release environmental reports.

Statements and Declarations

Ethics approval and Consent to Participate

The research described in this paper was reviewed and approved by the School of Economics and Management at Anhui University of Science and Technology, China.

This study was conducted according to the Declaration of Helsinki. Ethical approval was obtained from the Institutional Review Board (IRB) of the School of Economics and Management at Anhui University of Science and Technology, China.

Informed consent was obtained from all participants involved in the study.

Consent for Publication 

Not applicable. This manuscript does not contain any person’s data in any form.

Funding Statement

This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.

Conflict of interest

The authors declare that they have no conflict of interest regarding the publication of this research.

Author’s contributions

JW: Writing – review & editing, Supervision, Funding acquisition, Formal analysis, Conceptualization.

KARPA and JT: Writing– original draft, Validation, Supervision, Software, Resources, Methodology, Investigation, Funding acquisition, Formal analysis, Data curation, Conceptualization.

Funding Information

This work was supported by the Anhui Higher Educational Project of Excellent Scientific Research and Innovation Team [grant number 2023AH010026].

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