The impact of voluntary sustainability reporting on firm value: Insights from signaling theory

The purpose of this study is to examine the relationship between voluntary sustainability reporting and firm value, as measured by Tobin's q. We test three main hypotheses developed from signaling theory and the sustainability reporting literature on a large panel of reporting and non-reporting organizations for the period 2011-2020. The results of a fixed effects panel model suggest that, in general, sustainability reporting is negatively related to Tobin's q. However, the results also indicate that the relationship between sustainability reporting and Tobin's q becomes increasingly positive over time. Our conclusion is that sustainability reporting is initially a costly signal, but that it eventually enhances firm value as companies learn how to better communicate sustainability initiatives to stakeholders and investors learn how to properly evaluate reports. Finally, in an analysis of sustainability reporting organizations, we find that external assurance is positively associated with Tobin's q. External audits appear to increase the credibility of reports. Implications for marketing theory and practice are discussed.