Sustainable accounting quality and its impact on financial success aligned with SDGs

Abstract

Purpose

Financial and nonfinancial disclosures (sustainable accounting) are crucial in the annual financial reports of many firms. This study aims to explore the dynamic relationship between sustainability disclosure quality (SDQ) and financial performance (FP) within mandatory disclosure frameworks. SDQ is evaluated across six dimensions, encompassing both the quality and quantity of disclosures, aiming to understand their reciprocal influence.

Design/methodology/approach

Using the generalized method of moments (GMM), this research analyzes data from 2013 to 2019, focusing on 99 listed Indian firms within the S&P Bombay stock exchange (BSE) 500 index. The study uses rigorous measurement criteria to assess SDQ and uses statistical methods to unveil the causal link between SDQ and FP.

Findings

The results show a positive causal connection between SDQ and FP, where organizations with good FP make relatively higher disclosures across FP proxies than their counterparts. Additionally, the study investigates the impact of research and development (R&D) expenditure and dividend payments (DIVD) on SDQ. Notably, lower R&D spending is associated with higher quality SDs, and companies with superior SDQ exhibit increased DIVD.

Practical implications

The findings advocate for strengthened regulatory compliance, incentivized sustainable practices and heightened reporting standards for a transparent business environment and achieving the relevant United Nations Sustainable Development Goals.

Originality/value

This research contributes original insights by uncovering the intricate relationship between SDQ and FP, shedding light on the impact of R&D expenditure and DIVD on SDQ. These findings contribute to a nuanced understanding of the interplay between FP and sustainability reporting within the context of mandatory disclosure frameworks.

Citation

Mishra, P., Sharma, A., Rabbani, M.R., Khan, A. and Kumar, S. (2024), "Sustainable accounting quality and its impact on financial success aligned with SDGs", Journal of Accounting & Organizational Change, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAOC-01-2024-0010