Disclosure of non-financial material sustainability information and company financial performance: Evidence from Australian listed companies
Creators: name: Ashraf, Al
Publisher: name: Torrens University Australia
Year: 2024
Subjects: classificationCode: 350303
subject: Business information systems

description: The study investigates the relationships between disclosure of non-financial material sustainability information and the financial performance of listed Australian companies in the materials sector. Although much has been published about sustainability disclosure in general, research on companies’ disclosure of non-financial material information related to sustainability issues is an emerging area. If a company’s sustainability report contains a great degree of immaterial information, the value of the report may be affected and material information may get lost. As a company and its various stakeholders take strategic decisions, the study could inform their longterm value maximisation as it would allow them to focus on the most relevant issues. The present study randomly selected 100 companies from 636 ASX listed companies in the materials sector, which constitutes about a third of all ASX listed companies as well as the highest contributor to the Australian GDP among the twenty sectors reported for the Australian GDP estimates.This study uses the GRI G4 guidelines and performance indicators for reporting non-financial material sustainability information, and content analysis of the annual reports and sustainability reports. The study also estimates the relationship between the companies’ disclosure of non-financial material sustainability information and their financial performance using fixed-effects regression models. This study uses both accounting-based (return-on-asset [ROA], return on equity [ROE]) and market-based (Tobin’s Q) financial performance measures of the companies for the analysis.The study findings suggest that the disclosure of non-financial material sustainability information by the Australian listed companies in the materials sector is low. However, compared to 2014, the disclosure level increased in 2015 (ranging from 3.1 percent to 25.7 percent increase). In addition, large-cap companies are found to be disclosing more than small and medium-cap companies. The study findings also show mixed relationship (no relationship and statistically significant negative relationship) between lagged aggregate non-financial material sustainability disclosure and companies’ financial performance. Findings from subgroup analysis by company size (small-, medium-, and large-cap) show no statistically significant relationship between the lagged aggregate material sustainability score and financial performance for small-cap and medium-cap companies. However, the findings indicate a mixed relationship (no relationship and statistically significant negative relationship) for the large-cap companies. The analysis for the separate relationship between lagged disclosure of economic, environmental and social aspects of non-financial material sustainability information and financial performance for all companies, as well as for subgroups companies, show no statistically significant relationship.This study contributes to the existing non-financial material sustainability disclosure literature in a number of ways: (1) developing a scoring index; (2) applying a stronger methodological approach than what has been applied in the related research literature in the Australian context; (3) using a one-year lagged value of disclosure scores, which avoids the possibility of reverse causality; (4) concurrently examining three aspects of material sustainability information: economic, environmental and social, while exploring the relationship between companies’ disclosure of nonfinancial material sustainability information and their financial performance; (5) generating new empirical evidence on this issue for Australian companies in a specific sector, namely, the materials sector; and (6) providing useful information for different stakeholders in Australia, who use both financial and non-financial information for formulating business policies and making decisions.Results from the present study produces more credible evidence compared to the existing research in the Australian context and will be relevant for the ongoing disclosure of nonfinancial material sustainability information by Australian companies. As disclosure of non-financial material sustainability information is predominantly voluntary for Australian companies, the results of the present study might have been different if the requirement for disclosure of non-financial material sustainability information was made mandatory for Australian companies as a regulatory matter. Future research could usefully explore the influence of the non-financial material sustainability reporting on the Australian listed companies’ financial performance with a longer time horizon to see whether the results differ from that of the present study. Future research may compare the results between different countries to explore whether the findings vary based on the country context. Future research may also look to explore ways to identify the causal link between non-financial material sustainability score and company financial performance.