Market reaction to mandatory sustainability disclosures: evidence from Singapore

Abstract

PurposeThis study aims to investigate the equity market reaction to sustainability disclosure measures derived from firms' inaugural sustainability reports following the implementation of mandatory sustainability reporting in Singapore.Design/methodology/approachThis study explores the equity market reaction to first-time sustainability reports of mandatory adopters and compares the reactions between voluntary and mandatory adopters. To mitigate any imbalanced distribution effects, entropy balancing techniques are employed.FindingsThe author observes a significant equity market reaction when mandatory adopters adhere to a reporting framework and release sustainability reports as standalone documents. Additionally, the study indicates that government regulation amplifies the equity market reaction for companies that include a board statement within their sustainability reports and present them as standalone publications.Research limitations/implicationsThe lack of quantitative information disclosed in the first-time sustainability reports may restrict the generalizability of the findings.Practical implicationsThe findings provide valuable insights for organizations and managers to evaluate the market's response to sustainability disclosures and improve communication effectiveness with investors. Furthermore, the study has direct policy implications for global standard-setting organizations in sustainability reporting. The findings support the notion that investors value market-led and investor-focused sustainability disclosures.Originality/valueThe study contributes to the limited body of research that examines the capital market effects of mandatory sustainability disclosures. To the author’s knowledge, this is among a few studies to directly investigate the equity market reaction to mandatory sustainability disclosures at the firm level.