How Do Investors Perceive CEOs’ Style of Sustainability Reporting? The Adverse Effect on Cost of Equity Capital
Posted: 4 Aug 2018
Date Written: July 16, 2018
How do investors perceive CEOs’ style of sustainability reporting? To answer this question, we connect the reporting style of CEOs with sustainability reporting and sustainability performance at firm level and analyze the joint effect of CEOs’ reporting styles, sustainability reporting and sustainability performance on cost of equity capital. We find empirical evidence that increases in the quality of sustainability reporting are positively associated with cost of equity capital increases for specific ranges of simultaneous increases in sustainability performance. This association is even more pronounced for firms employing CEOs with a tendency towards sustainability reporting. Our findings are in line with the argument that investors perceive extensive reporting on sustainability rather as a sign of inefficient use of a firm’s resources. Further analyses reveal that these results are mainly driven by firms with large holdings of institutional investors. Firms with a higher (lower) share of institutional holdings suffer (benefit) from sustainability reporting quality increases with higher (lower) cost of equity capital.
Keywords: CEOs’ Style, Sustainability Reporting, Sustainability Reporting Score, CEOs’ Sustainability Reporting Style, Sustainability Performance, CEO Fixed Effects, CFO Fixed Effects, Cost of Equity Capital, CEO-Firm Matched Panel Analysis
JEL Classification: M40, M41, M49, M50, M51, Q56, Q59
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