The Impact of Strategic Relevance and Assurance of Sustainability Indicators on Investors’ Decisions

55 Pages Posted: 11 Feb 2014

See all articles by Mandy M. Cheng

Mandy M. Cheng

UNSW Australia Business School, School of Accounting

Wendy Green

UNSW Australia Business School, School of Accounting

John Ko

University of New South Wales (UNSW)

Date Written: February 9, 2014

Abstract

In this study, we report two 2 x 2 between-subjects experiments which investigate the effect of strategic relevance of reported sustainability information and its assurance on nonprofessional investors’ investment decisions. The first experiment manipulates strategic relevance of reported environmental, social and governance (ESG) indicators between “high” and “low” by varying the company strategy (sustainability-based differentiation strategy versus cost leadership strategy unrelated to sustainability). The second experiment manipulates the strategic alignment of the ESG indicators (holding strategy constant). We also manipulate the presence (absence) of assurance in both experiments. Results from both experiments document that investors perceive ESG indicators to be more important, and are more willing to invest in the company, if ESG indicators have higher strategic relevance. Experiment one also provides evidence that assurance increases investors’ willingness to invest to a greater extent when ESG indicators have high relevance to the company strategy. Our findings suggest that the assurance of ESG indicators has a beneficial signaling role in communicating the importance of this reported information to investors.

Suggested Citation

Cheng, Mandy M. and Green, Wendy and Ko, John, The Impact of Strategic Relevance and Assurance of Sustainability Indicators on Investors’ Decisions (February 9, 2014). Auditing: A Journal of Practice & Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2393155

Mandy M. Cheng (Contact Author)

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
(612) 9385.6343 (Phone)

Wendy Green

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

John Ko

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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