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Integrating Sustainability Reports into Financial Statements: An Experimental Study

44 Pages Posted: 29 Mar 2012 Last revised: 26 Jun 2012

Markus C. Arnold

University of Bern - Institute for Accounting

Alexander Bassen

University of Hamburg; University of Reading - ICMA Centre

Ralf Frank

DVFA

Date Written: June 11, 2012

Abstract

In recent years, sustainability has increasingly attracted the attention of capital market participants. While event studies have established that stock prices react to news about environmental, social, and governance (ESG) performance, further empirical evidence raises the question of whether market participants always rationally process ESG information included in a standalone sustainability report. In an experiment with investment professionals, this study investigates whether a disconnect between financial statements and sustainability reports leads to an anchoring effect in the assessment of ESG information. Results show that users of standalone sustainability reports fully adjust their valuations to the level of integrated (financial and sustainability) report users following information about bad ESG performance. However, none of the standalone reports users adjust their valuations following information about good ESG performance. Thus, financial statement users asymmetrically anchor on their financial value judgments when assessing ESG information provided in a standalone report.

Keywords: Sustainability, financial performance, ESG information, anchoring

Suggested Citation

Arnold, Markus C. and Bassen, Alexander and Frank, Ralf, Integrating Sustainability Reports into Financial Statements: An Experimental Study (June 11, 2012). Available at SSRN: https://ssrn.com/abstract=2030891 or http://dx.doi.org/10.2139/ssrn.2030891

Markus C. Arnold (Contact Author)

University of Bern - Institute for Accounting ( email )

Engehaldenstr. 4
Bern, 3012
Switzerland

Alexander Bassen

University of Hamburg ( email )

Von-Melle-Park 5
20146 Hamburg
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Ralf Frank

DVFA ( email )

Mainzer Landstrasse 47a
Frankfurt, 60329
Germany

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