Does Financial Performance Improve the Quality of Sustainability Reporting? Exploring the Moderating Effect of Corporate Governance

Aws AlHares ()
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Aws AlHares: Department of Accounting and Finance, Prince Mohammad bin Fahd University, 617, Al Jawharah, Khobar 34754, Saudi Arabia

Sustainability, 2025, vol. 17, issue 13, 1-25

Abstract: This study examines the interplay of financial performance, corporate governance, and sustainability reporting quality (SRQ), addressing the need to enhance corporate transparency and accountability in an emerging market context. Guided by agency and stakeholder theories, this study investigated the effects of board size, independence, diversity, and experience on SRQ, along with the moderating role of governance in the financial performance–SRQ relationship. Using an explanatory research design and quantitative approach, data from 88 listed firms in premier markets from 2015 to 2024 were analyzed using ordered logistic regression. All data were gathered from the Refinitiv Eikon Platform (LSEG), annual reports. Panel GMM regression is used to estimate the relationship to deal with the endogeneity problem. The findings reveal that board size and experience positively influence SRQ, highlighting the role of diverse expertise and seasoned directors in fostering sustainability. Financial performance alone was not significantly associated with SRQ. However, robust governance structures enhanced the translation of financial resources into improved reporting quality. Firm size emerged as a key determinant, with larger firms exhibiting higher SRQ, while financial firms lagged compared to non-financial sectors. This study concludes that corporate governance is pivotal in shaping SRQ, particularly in resource-constrained environments. This study contributes to the literature by bridging governance, financial performance, and sustainability, offering practical insights for policymakers and corporate leaders to improve SRQ through regulatory frameworks and governance reforms.

Keywords: sustainability reporting quality; sustainable development goals; environmental, social, and governance (ESG) practices; GCC; governance; performance; emerging markets (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:17:y:2025:i:13:p:6123-:d:1694397

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