Mid Sweden University

Purpose

This study aims to examine the influence of mandatory sustainability reporting on the cost stickiness of companies.

Design/methodology/approach

The study employs Anderson et al.'s (2003) cost stickiness model, using the difference-in-difference method, where the treatment and control groups comprise companies from 17 European Union (EU) countries and 11 non-EU Organisation for Economic Co-operation and Development countries, respectively. The time period spans from 2013 to 2022, with 2017 being the year of the EU Directive's implementation. The study uses various approaches in addressing endogeneity issues, including propensity-score matching, the multiple specifications method, parallel trend analysis, placebo variable and control variables.

Findings

The results confirm a statistically significant increase in discretionary costs, i.e. selling general and administrative costs, for EU companies in the post-implementation period. The stickiness is more profound in companies demonstrating an annual improvement in sustainability performance. Stakeholder-oriented civil law countries exhibit an increase, while shareholder-oriented common law countries show a decrease in cost stickiness.

Research limitations/implications

The study extends the literature on the economic effects of mandatory sustainability reporting by examining the novel aspect of cost behaviour, thereby revealing managerial perceptions about costs arising from compliance. It also highlights the role of company-level and country-level pre-regulation sustainability involvement in moderating the regulatory effect.

Practical implications

The study provides insights for policymakers in terms of formulating future regulations.Originality/valueThis study is the first to analyse cost stickiness in relation to mandatory sustainability reporting, adopting a multiple-country setting and covering a significantly long time period.

Purpose – This study aims to examine the influence of mandatory sustainability reporting on corporate transparency by determining whether such soft regulations drive a change toward substantive or symbolic transparency. It also investigates the role of country and industry in moderating a company’s compliance with sustainability-related regulations.

Design/methodology/approach – The study uses difference-in-differences analysis to examine the influence of EU Directive implementation on corporate transparency, measured as the disclosure-performance gap. The treatment and control groups comprise companies from 17 European Union (EU) and 11 non-European Union Organization for Economic Cooperation and Development (non-EU OECD) countries, respectively. The timeperiod spans from 2013 to 2022, with 2017 being the year of the treatment, i.e. the EU Directive implementation.The study uses various approaches to address endogeneity issues, including the multiple specifications method, parallel trend analysis, propensity score matching and control variables.

Findings – In the post implementation period of the EU Directive, EU companies exhibited a shift toward a wider disclosure-performance gap, i.e. symbolic transparency. Additionally, civil-law (common-law) countries tend toward substantive (symbolic) transparency, and industries under higher stakeholder scrutiny are engaged in symbolic transparency.

Research implications – This study provides empirical evidence that mandatory sustainability reporting leads toward symbolic transparency, reinforcing legitimacy theory. It examines transparency by using the novel approach of assessing the gap between sustainability disclosures and actual performance. The ten-year period adds to the significance of the results.

Practical implications – It provides insights for policymakers for designing future regulatory frameworks.

Originality/value – First, it offers a novel approach to analyzing the effectiveness of mandatory sustainability reporting by emphasizing on distinguishing between substantive and symbolic transparency by evaluating the disclosure-performance gap. Second, while it provides a comprehensive analysis of all EU companies’ transparency, it also uncovers the country-level and industry-level heterogeneity arising from variations in institutional environmental and stakeholder pressures. Third, it fills the frequently highlighted industry-, regional and temporal gaps in the literature of mandatory sustainability reporting in general and the EU Directive inspecific.  

This thesis studies mandatory sustainability reporting by analysing corporate behaviour through two novel approaches: greenwashing, measured by the disclosure-performance gap, and cost behaviour, assessed via cost stickiness. Drawing primarily on institutional theory and supported by complementary theoretical perspectives, the thesis proposes and empirically tests competing hypotheses to distinguish substantive from symbolic compliance with regulation. Employing the difference-in-differences estimation, the analysis compares companies from 17 European Union (EU) countries subject to the European Union’s Non-Financial Reporting Directive 2014/95/EU against companies from 11 non-EU OECD countries. The studied period spans around the implementation of the directive in 2017, delineated into pre-implementation (2013–2016) and post-implementation (2017–2022) phases.

To mitigate endogeneity concerns and strengthen causal inference, the study incorporates a range of methodological strategies, including parallel trend analysis, propensity score matching, multiple model specifications, and a robust set of control variables. Results show a significant widening of the disclosure-performance gap among the EU companies post-implementation of the directive, indicating symbolic compliance. Conversely, a notable increase in cost stickiness among these companies suggests genuine organizational change, especially pronounced in companies with improved sustainability performance.

The thesis offers a theoretical contribution by conceptualizing and empirically substantiating the disclosure-performance gap and cost stickiness as analytical constructs in the context of mandatory sustainability reporting. Moreover, its cross-country and longitudinal research design addresses prevalent gaps in the literature.  Practically, it offers policy implications for regulators aiming to design effective sustainability reporting frameworks that encourage authentic sustainability transformations at the organizational level.

Denna avhandling undersöker effektiviteten hos obligatorisk hållbarhetsrapportering genom att analysera två dimensioner av företagsbeteende: ”greenwashing”, mätt via skillnaden mellan redovisad och faktisk prestation, samt kostnadsrelaterat beteende, utvärderat genom kostnadsrigiditet. Utifrån institutionell teori och kompletterande teoretiska perspektiv testar avhandlingen konkurrerande hypoteser för att skilja mellan substantiell och symbolisk regelefterlevnad. Genom att använda en ”difference-in-differences-analys” jämförs företag från 17 EU-länder, som omfattas av EU:s direktiv om icke-finansiell rapportering (Direktiv 2014/95/EU), med företag från 11 icke-EU OECD-länder. Studien omfattar perioderna före (2013–2016) och efter (2017–2022) implementeringen av direktivet. För att hantera endogenitet och stärka kausala slutsatser används parallella trendanalyser, ”propensity score matching”, varierade modellspecifikationer och ett omfattande antal kontrollvariabler.

Resultaten visar att efter implementeringen av direktivet ökade skillnaden mellan rapportering och faktisk prestation betydligt mer bland EU-företagen än bland företagen i kontrollgruppen, vilket tyder på symbolisk efterlevnad. Samtidigt uppvisade EU-företagen ökad kostnadsrigiditet efter införandet av direktivet, vilket tyder på ett organisatoriskt engagemang för hållbarhet, särskilt hos företag som förbättrat sin hållbarhetsprestanda.

Avhandlingen bidrar teoretiskt genom att dels introducera skillnaden mellan rapporterad och faktisk prestation. dels kostnadsrigiditet inom området hållbarhetsrapportering. Avhandlingens jämförande forskningsdesign och longitudinella ansats bidrar till att fylla luckor i befintlig litteratur. Praktiskt erbjuder resultaten policyimplikationer för beslutsfattare som grund för att utforma ramverk för hållbarhetsrapportering som främjar autentiska hållbarhetsomställningar på organisatorisk nivå.

Purpose: This study examines the influence of mandatory sustainability reporting on the cost stickiness of companies.

Design/Methodology/Approach: The study employs Anderson et al.’s (2003) cost stickiness model, using the difference-in-difference method, where the treatment and control groups comprise companies from 17 EU countries and 11 non-EU OECD countries, respectively. The time period spans from 2013 to 2022, with 2017 being the year of the EU Directive’s implementation. The study uses various approaches in addressing endogeneity issues, including propensity-score matching, multiple specifications method, parallel trend analysis, placebo variable, and control variables.

Findings: The results confirm a statistically significant increase in discretionary costs, i.e., Selling General and Administrative costs, for EU companies in the post-implementation period. The stickiness is more profound in companies demonstrating an annual improvement in sustainability performance. Stakeholder-oriented civil law countries exhibit an increase, while shareholder-oriented common law countries show decreased cost stickiness.

Research implications: The study extends the literature on the economic effects of mandatory sustainability reporting by examining the novel aspect of cost behaviour, thereby revealing managerial perceptions about costs arising from compliance. It also highlights the role of company-level and country-level pre-regulation sustainability involvement in moderating the regulatory effect.

Practical implications: The study provides insights for policymakers in terms of formulating future regulations.

Originality: This study is the first to analyse cost stickiness in relation to mandatory sustainability reporting, adopting a multiple-country setting and covering a significantly long time period.