COVID-19 pandemic resilience: an analysis of firm valuation and disclosure of sustainability practices of listed firms

Soon-Yeow Phang, Christofer Adrian, Mukesh Garg, Anh Viet Pham and Cameron Truong

Managerial Auditing Journal, 2022, vol. 38, issue 1, 85-128

Abstract: Purpose - This paper aims to investigate the effect of firms’ sustainability practices on firm performance and valuation during the COVID-19 pandemic. Design/methodology/approach - Using a sample of Australian listed firms from 2011 to 2021, the authors perform textual analysis on sustainability practices from annual reports and sustainability report disclosures and include this variable in various regression models that assess firm valuation. The authors also use propensity score matching and Heckman two-stage regression methodology to address endogeneity concerns. Findings - The authors find that firms disclosing sustainability practices exhibit higher market valuations relative to other firms. Specifically, loss-making firms exhibit higher market valuation during the COVID-19 crisis relative to prior period. The authors also observe a negative association between sustainability practices and firm performance proxied by return on assets. The findings suggest that engagement in sustainable practices helps loss-making firms remain resilient during the pandemic. In addition, the authors find that the positive relation between sustainability practices and firm value is stronger among firms with a higher level of annual report readability. Originality/value - Considering the conflicting evidence in the literature on the economic benefits of sustainability practices, this study takes advantage of the heterogeneity in corporate practices and provides empirical evidence that a firm’s sustainability practices can build economic resilience during the COVID-19 pandemic crisis. The authors believe the findings of the study is timely in informing the regulators and standard-setters on changes in reporting required to increase sustainability in the business practices.

Keywords: COVID-19 pandemic; Tobin’s Q; Readability; Return on assets; Sustainability; Textual analysis (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-06-2021-3183

DOI: 10.1108/MAJ-06-2021-3183

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