Sustainability Reporting and Value Relevance of Financial Statements

This study examines whether information about the winners of the Sustainability Reporting Award (SRA) contributes to the usefulness of the information in financial statements. This study used a sample consisting of 110 winners of SRA (SRA firms) and 110 companies that did not receive SRA (non-SRA firms) from 2008 to 2016. The study found that earnings per share (EPS), earnings per share change (EPSC), and book value per share (BVPS) are value-relevant information. Results of comparison between SRA firms and non-SRA firms show that the positive association between EPS and stock price (P) and the positive association of EPS with stock returns (R) for SRA firms are higher than that for the non-SRA firms. In addition, findings of this study indicate that EPSC is positively associated with R when EPSC and R are measured by Indonesian rupiah (IDR) instead of by percentage, and the positive association between EPSC and R for the SRA firms is higher than that for the non-SRA firms. Thus, the results are sensitive to measures of the variables. However, this study found that value relevance of BVPS for SRA firms is lower than for non-SRA firms. Implication of this study is that information about the winners of SRA contributes to the usefulness of financial statements, especially the information of EPS and EPSC.


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The importance of the financial markets, institutions and instruments has grown markedly during 26 the last five decades. Nowadays, also with fewer and fewer barriers to international trade and financial 27 flows, and with communications technology directly linking each major financial centre, the 28 dimensions of international finance and financial markets is becoming more and more unique. [1] 29 In making investment decisions in the capital market, investors need to determine the intrinsic information. In this study, accounting information is the information contained in the financial statements. Therefore, more specifically this study examines the impact of SRA on the value relevance of financial statements.
Sustainability reporting is an issue that has been the focus of the business world in recent years examined the association between earnings per share (EPS) and/or other information such as earnings relevance of accounting information, the present study examines the impact of the sustainability 116 reporting award (SRA) on the value relevance of information contained in financial statements 117 particularly book value per share, earning per share, and earnings per share change using data from an emerging market, Indonesia, that recently organised SRA participated voluntarily by companies. impossible. However, after the GRI Guideline was published, many studies on sustainability reporting 139 were conducted. Hedberg and Malmborg [10] reviewed the use and experience of GRI in ten companies 140 in Sweden. From interviews with all Swedish companies using GRI guidelines, they found that 141 companies that implement corporate sustainability reporting (CSR) using GRI guidelines are based on a variety of reasons: to seek organizational legitimacy, to meet expectations of increasing CSR credibility, availability of templates for the preparation of CSR reports, has been more helpful in internal communication than in external communications, and to help companies learn about themselves and see what the company has done. According to Hedberg & Malmborg, GRI guidelines require further development. In contrast to the findings of Hedberg and Malmborg [10], Gray [18] argues that "substantive social and environmental reporting and, especially, high-quality reporting on organs which support it are essentially designed to maximise environmental destruction and the erosion of any realistic notion of social justice".
Despite the different or even contradictory views of sustainability reporting as described above, found that many companies have begun to pay attention to board supervision and sustainability 154 accountability structure, although the detailed disclosure has not been widely practiced. Astupan and 162 [17] in the top ten mining companies indicates that quantitative information is less communicated than 163 qualitative information, and the financial value of environmental, social, and governance (ESG) 164 measures is not fully communicated by the top ten leaders of the mining sector in their report. A study 165 conducted by Farneti and Guthrie [16] on seven public sector organizations in Australia also found that from the perspective of information providers, the disclosure of sustainability information is more widely used for internal stakeholders, and results of the study is in line with the findings of the Hedberg and Malmborg [10] study. In addition, sustainability reporting is generally conducted using the annual

Sustainability Reporting and Value Relevance of Accounting Information
Previous studies of sustainability reporting have also examined its relationship with accounting information. Ansari et al. using an event study methodology with a global sample (Europe, the United States, and Australia) found that sustainability reporting has a positive effect on stock prices of real estate firms. Based on these findings Ansari et al. [13] suggest that because sustainability and its communications do have an impact on the valuation of the company, relevant in decision making for 180 shareholders, efforts to promote the sustainability of the company need to be done.

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Findings from the studies on sustainability reporting as described above indicate that there is a 182 positive support trend towards the existence of sustainability reporting [36,37]. Nevertheless, it has 183 also been described above that there are sustainability reporting weaknesses as proposed by Gray and

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The current study explores and examines whether sustainability reporting award (SRA) can 186 improve the value relevance of the financial statements as part of accounting information. This study 187 uses two theoretical foundations, namely decicion usefulness theory or called decision usefulness 188 approach to financial reporting [38]. This approach is an approach in the engineering of financial

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reporting system that aims to generate financial information that is useful for investors in making 190 investment decisions. The study of value relevance of accounting information is mostly done to test the 191 decision usefulness of the accounting information. The decision usefulness approach to financial reporting is done by providing relevant information and full disclosure. However, not all information about the company revealed through the financial reporting system can be 'captured' by investors. Therefore, managers need to convey signals to investors about 'good information' to assist them in using financial information for investment decision making. 'A signal is an action taken by a high-type manager that would not be rational if that manager was low type' [38]. This signaling theory is based and Reimsbach and Hahn [44] The current study explores and examines whether sustainability

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To examine the impact of sustainability reporting award (SRA) on the value relevance of 213 financial statements, this study uses the following regression models.    Table 1. Descriptive statistics are presented in Table 2 consisting of descriptive statistics for the full sample

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The results of correlation analysis are presented in Table 3  for the subsample of SRA firms. Table 3 shows that P has a positive correlation with BVPS and is 294 significant at the 0.01 level. There is a moderate positive relationship between P and BVPS for Panels A

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and Panel B and a strong positive relationship between P and BVPS Panel C. P has strong positive 296 relationship with EPS but only for Panel C. These results are consistent with the value relevance of 297 BVPS, but the value relevance of the EPS is only for SRA firms.  Table 4 presents the regression results with the stock price (P) as the dependent variable. The These results indicate that the value relevance of the BVPS for the SRA firms is lower than the that for 315 the non-SRA firms. However, the results change when natural logarithms are used to measure P and 316 BVPS, that is the value relevance of the BVPS for the SRA firms is higher than the that for the non-SRA  (4), and model (4a) and with a sample of 220 observations are presented in Table 5.

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EPSxSRA coefficient for the model (4a) is positive and significant at the 0.05 level while the EPSCxSRA 327 coefficient is also positive but not significant. These results indicate that using the return model, the 328 value relevance of the EPS for the SRA firms is higher than that for the non-SRA firms.   indicating the value relevance of EPS is higher for SRA firms than that for non-SRA firms. However, 336 using natural logarithm for P and BVPS, the results change (Note: Regression results are not presented).

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The BVPS coefficient is positively significant at the 0.01 level for both model (5) and model (5a) of the 338 SRA firms and non-SRA firms. These results indicate that BVPS have value relevance, both for SRA 339 firms and for non-SRA firms.

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Regression results with stock return (R) as the dependent variable for the subsample of SRA firms 343 and for non-SRA firm subsample are presented in Table 7. The EPS coefficient is positive and significant at the 0.01 level for the SRA firms, but the EPS coefficient is not significant for non-SRA firms. The EPSC coefficient is positive but not significant either for the SRA firms or for non-SRA firms. These results are consistent with the regression results presented in Table 5 which indicate that the value relevance 347 of the EPS for the SRA firms is higher than that for the non-SRA firms, but the EPSC has no value 348 relevance either to the subsample of SRA firms as well as for non-SRA firms.  Table 8 and Table 9. Table 8 show that the use of positive EPS subsample, BVPS is positively associated with P for non-SRA firms, while EPS is 354 positively with P for SRA firms. Table 9 show that using positive EPS subsample, EPS is positively 355 associated with R for SRA firms, while CEPS is positively with R for non-SRA firms. Thus, CEPS has 356 positive asassociation with R for firms with positive EPS.  information about the winners of SRA has an impact on the value relevance of the financial statements.

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The implication of the findings of this study is that the determination of the SRA winners to the SRA