Firm Value and the Quality of Sustainability Reporting in Australia

This paper investigates the relationship between firm value and the quality of Australian listed corporations' sustainability reporting. We examine whether firms that make higher-quality sustainability disclosures exhibit systematically higher equity prices, through either (or both) cost of capital or expected future performance effects. Using proprietary data obtained from a specialist responsible investment research firm, we document a significant negative association between quality sustainability reporting and the cost of equity capital for ASX 200 firms from 2003-2005, and a significant positive association between expected future performance and the quality of sustainability reporting. We also test for industry-specific associations and find that our main results are driven heavily by the reporting behaviour of, and market response to, firms in environmentally sensitive industries.