Financial Disclosure Quality and Sustainability Disclosure Quality. A Case in China

Abeysekera, I,, Li, F, & Lu, Y. 2021. Financial disclosure quality and sustainability disclosure quality. A case in China. PLoS ONE, Vol. 16, No. 5, Article e0250884. https://doi.org/10.1371/journal.pone.0250884

48 Pages Posted: 7 Jun 2021

See all articles by Indra Abeysekera

Indra Abeysekera

University of Wollongong

Feng Li

University of Wollongong - Faculty of Commerce

Yingjun Lu

Shanghai University of International Business and Economics

Date Written: 2021

Abstract

This paper empirically examines whether there is an association between financial reporting disclosure quality and sustainability disclosure quality of the top 100 socially reputed Chinese listed firms. The paper computed financial disclosure quality by empirically combining earning qualities of accrual, persistence, predictability, and smoothness. Using content analysis and survey questionnaire research methods, it calculated sustainability quality by combining disclosure quantity (through quantitative weightings), disclosure type (through qualitative weightings), and disclosure item importance (through qualitative weightings) of economic, social, and environmental disclosures made in annual and sustainability reports, ascertained using the Global Reporting Initiative sustainability framework. The study finds that sustainability disclosure in the current period is sufficiently associated with financial disclosure quality of the current period and future period. Consistent with stakeholder theory, firms with a social reputation are perceived as trustworthy by stakeholders and shareholders. The findings lead to a cultural stakeholder theory where underlying values of societal culture create a condition supporting mutual stakeholder relationships between firm and various stakeholders. Demonstrating trustworthiness through disclosures can help boost consumer confidence and foreign trade relations for Chinese firms. The Chinese government can design innovative schemes to reward and promote trustworthiness in firms, such as regulating base-point reductions in interest rates on borrowing or raising funds.

Keywords: China, disclosure quality, financial disclosure quality, sustainability, sustainability disclosure quality

JEL Classification: M41, M49

Suggested Citation

Abeysekera, Indra and Li, Feng and Lu, Yingjun, Financial Disclosure Quality and Sustainability Disclosure Quality. A Case in China (2021). Abeysekera, I,, Li, F, & Lu, Y. 2021. Financial disclosure quality and sustainability disclosure quality. A case in China. PLoS ONE, Vol. 16, No. 5, Article e0250884. https://doi.org/10.1371/journal.pone.0250884, Available at SSRN: https://ssrn.com/abstract=3856088 or http://dx.doi.org/10.2139/ssrn.3856088

Indra Abeysekera (Contact Author)

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Feng Li

University of Wollongong - Faculty of Commerce ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Yingjun Lu

Shanghai University of International Business and Economics ( email )

No. 1900, Wenxiang Road
Shanghai, 201620
China

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