Post-Issue of Sustainability Report: Does Market Valuation Improve?

Abstract

Following the increased concern on sustainability reporting in Indonesia, this study attempts to investigate whether the issuance of sustainability report is able to provide positive impact on bank reputation and market valuation. We use a set of unbalanced panel data that consist of 43 Indonesian listed banks throughout 2010-2018 while our analysis is performed with panel data regression using STATA statistics software. Overall, the findings demonstrate that environmental disclosure provides positive impact on market valuation while economic and social disclosure do not. We also find the mediating role of bank reputation between the link of environmental disclosure and market valuation. By splitting the observation period into pre and post sustainable finance roadmap implementation, we find that economic disclosure holds significant contribution to increasing market valuation in the period before sustainable finance roadmap implementation while social and environmental disclosure demonstrate positive effect in the period when sustainable finance roadmap is implemented. This study, however, still contains limitation due to the use of content analysis in assessing sustainability report quality that may contain subjectivity issue. Further studies can obtain external assurance from independent experts in this subject. The use of quantitative-qualitative mixed method may also be a solution to solve this issue. This study provides several implications. Firstly, this study supports the regulation from the Indonesia Financial Service Authority to increase the participation of Indonesian banks in sustainability reporting in which the implementation must be followed with high regulation enforcement. We also suggest the practice of sustainability reporting for Indonesian listed banks as it gives considerable benefit in higher market valuation. This research addresses the gap in Indonesian literature that is limited on determinant study by providing more insights on how sustainability reporting provides on higher bank reputation and market valuation.