Financial disclosure quality and sustainability disclosure quality. A case in China

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.

The impact of environmental disclosure and the quality of financial disclosure and IT adoption on firm performance: Does corporate governance ensure sustainability?

“…Financial disclosure quality (FDQ): following the existing literature (Abeysekera et al, 2021), the present study has constructed the financial disclosure quality indexed by accounting for accrual, persistence, predictability, and smoothness. In financial reporting, "earnings quality" may be broken into four categories.…”

Financial reporting quality of ESG firms listed in China

“…Although governance did not have a significant influence on financial reporting quality, the managerial behaviour of ESG firms shows that they have not engaged in earnings management, and have made greater investments in projects meeting ESG criteria with increasing financial health. ESG firms that build long-term trustworthy relationships with stakeholders support the societal cultural dimension of long-term orientation in Chinese society [ 19 , 48 ].…”

“…The measurement model can accommodate errors and misstatements that decrease earnings accuracy. These models can affect financial reporting quality and therefore the relationship between timely earnings and operating cash flows [ 18 , 19 ].…”

The IFRS adoption, accounting quality, and banking performance: An evaluation of susceptibilities and financial stability in developing economies

“…Before overcoming expenses stickiness and enhancing corporate sustainability, manufacturing businesses must implement strategic cost management [34]. [35] computed by applying the Global Reporting Initiative sustainability framework and incorporating information from annual and sustainability reports, such as those on the company's financial health, social and environmental performance, and the value of specific disclosures (all weighted qualitatively). According to the results of this study, there is a strong correlation between the quality of financial disclosure in the present and the future.…”