Do Analysts’ Forecasts and the Cost of Capital Reflect Deviations in a Firm’s Sustainability Disclosures from its Sustainability Activities?

64 Pages Posted: 8 Nov 2017 Last revised: 18 Dec 2018

See all articles by Fábio Costa

Fábio Costa

FUCAPE Business School

M.H. Carol Liu

Arizona State University (ASU), W.P. Carey School of Business, School of Accountancy, Students

Regina Rosa

University of New Orleans - College of Business Administration

Samuel L. Tiras

Indiana University - Kelley School of Business

Date Written: December 17, 2018

Abstract

Firms disclose information about sustainability to influence stakeholders. Firms that proactively implement sustainability require financial capital, along with other resources, to achieve their sustainability goals. Transparency about a firm’s sustainability is low, however, thus some firms deceptively disclose information that deviates from actual sustainability activities. This deviation may occur because even appearing proactive is often sufficient to reap the presumptive rewards. In contrast, those firms that merely react to norms and regulations disclose little about sustainability. Together, we expect information asymmetry to be less for proactive than for deceptive or reactive firms. Using a US and non-US sample, our first step is to classify firms as proactive or deceptive using cluster analysis (an outcome approach) and self-selection analysis (an input approach). Our second-stage results support our expectations that the market discerns between firm types; and, are insensitive to alternative specifications, such as that in Lys, Naughton, and Wang (JAE 2015).

Keywords: Sustainability; Voluntary Disclosure; Analysts’ Forecast Errors; Analysts’ Forecast Dispersion; Cost of Capital; PEG

Suggested Citation

Costa, Fábio and Liu, M.H. Carol and Rosa, Regina and Tiras, Samuel L., Do Analysts’ Forecasts and the Cost of Capital Reflect Deviations in a Firm’s Sustainability Disclosures from its Sustainability Activities? (December 17, 2018). Kelley School of Business Research Paper No. 17-76. Available at SSRN: https://ssrn.com/abstract=3066476 or http://dx.doi.org/10.2139/ssrn.3066476

Fábio Costa

FUCAPE Business School ( email )

Fernando Ferrari Avenue, 1358
Goiabeiras
Vitória, Espirtio Santo 29075-010
Brazil

M.H. Carol Liu

Arizona State University (ASU), W.P. Carey School of Business, School of Accountancy, Students ( email )

Tempe, AZ
United States

Regina Rosa

University of New Orleans - College of Business Administration ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Samuel L. Tiras (Contact Author)

Indiana University - Kelley School of Business ( email )

801 W. Michigan Street
Indianapolis, IN 46202
United States
(317) 274-3420 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
67
Abstract Views
655
rank
331,527
PlumX Metrics