Sustainability Reporting Quality and Corporate Value: Indonesia and Malaysia Context

Abstract

Purpose: The aims of this research are twofold: (1) to examine the quality of sustainability reporting among publicly traded firms in Indonesia and Malaysia, and (2) to explore the cause-and-effect link between the quality of sustainability reports and corporate value.   Design/methodology/approach: The population consisted of manufacturing enterprises in Indonesia and Malaysia that have issued the Sustainability Report.   The sampling was conducted using a random sampling approach and the sample size was determined using the Slovin formula.   The assessment of sustainability reporting quality was conducted using certain indicators, namely: (1) adherence to regulations, (2) extent of time horizon disclosures, and (3) level of depth in content disclosure.   The assessment of corporate worth was determined by the annual increase in market capitalization.   The control variables employed were company size, capital intensity, leverage, and profitability.   The data was gathered from the annual report and sustainability report coverage for the years 2018, 2019, and 2020, which were published on the company's website and on the stock market.   By employing random sampling and ensuring the availability of all necessary data as per the regression analysis model, we acquired a total of 300 samples of manufacturing firms in Indonesia and 274 samples of manufacturing companies in Malaysia.   The evaluation of the Indonesia sustainability report's disclosure pertains to the compliance with Financial Services Authority Regulation Number 51 /POJK.03/2017, which outlines the guidelines for the implementation of sustainable finance.   The evaluation of Malaysia's sustainability report disclosure pertains to the Global Reporting Initiative (GRI).   The study employed panel data regression analysis to investigate the causal association between the quality of sustainability report and corporate value.   Findings: The practices of sustainability disclosure in Indonesia and Malaysia exhibit distinct emphases.   Indonesia priorities environmental factors, whilst Malaysia focuses more on social disclosure.   Companies in Malaysia have higher levels of disclosure compared to those in Indonesia due to the earlier implementation of the Global Reporting Initiative (GRI).   Environmental disclosures and social disclosures in Indonesia have a notable impact on the value of the company, as measured by Tobin's Q.   The negative coefficient of social disclosure indicates that investors typically react unfavorably.   The act of evacuating the environment has a beneficial effect, which is seen in the appreciation shown by investors.   The revelation of corporate governance has a favorable impact on the company's value (Tobin Q) in Malaysia, indicating that investors in Malaysia exhibit significant interest in governance matters.   Higher levels of governance result in reduced risk and increased desirability for investors. Research limitations/implications: Some corporations do not release sustainability reports, hence researchers must get data from annual reports.   The presentation of sustainability information in the annual report lacks organisation, resulting in frequently inadequate data.   Originality/values: The research's originality resides in its full measurement of disclosure and its study of each component of disclosure in the sustainability report.