The Effect of Country‐Level Investor Protection on the Voluntary Assurance of Sustainability Reports

David N. Herda · Martin E. Taylor · Glyn Winterbotham

89 citations0/0 files storedJournal of International Financial Management and Accounting

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Corporate Social Responsibility Reporting Auditing, Earnings Management, Governance Accounting and Financial Management

Abstract

Abstract Over the last several years, sustainable (or socially responsible) investing has experienced rapid growth around the world reflecting an increasing awareness by investors of social, environmental, ethical, and corporate governance issues. This heightened awareness among investors has resulted in a demand for sustainability reporting and a corresponding increase in demand for assurance of sustainability information to enhance its credibility. Using an investor‐based view, we examine the impact of country‐level investor protection on reporting companies’ voluntary sustainability assurance decisions. We find that both the decision to obtain voluntary sustainability report assurance and the decision to obtain higher quality assurance are more likely for firms domiciled in countries that have weaker investor protection. Our results indicate that managers in low investor protection countries use voluntary sustainability assurance as a substitute monitoring mechanism.

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References

1998Law and Finance 2003Corporate Social and Financial Performance: A Meta-Analysis 2000Investor protection and corporate governance 2010Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting 1992Determinants of corporate social responsibility disclosure: An application of stakeholder theory 2003Corporate governance, investor protection, and performance in emerging markets 2003The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equations approach 1998Managing Public Impressions: Environmental Disclosures in Annual Reports

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