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Determinants of voluntary assurance on sustainability reports: an empirical analysis

Abstract

Driven by the ongoing discussion of corporate responsibility, growing numbers of companies have been publishing what have become known as sustainability reports. These reports have in part been subject to voluntary external assurance. Although the percentage of assured reports is significant, the market for this kind of assurance is still in an early stage of development. In this context the present article will ascertain the theoretical determining factors in the demand for voluntary external assurance and subject these in relation to the markets in Germany, the Netherlands and Great Britain to empirical analysis. In the context of the development of hypotheses shaped by agency theory, the constructs of agency costs and signalling can be distinguished. Variables measuring these constructs will be examined. It can be shown that the type and scope of the reporting (i.e., the choice of the Global Reporting Initiative ‘application level’), the existence of a sustainability department, and the size of the company are associated with the demand for voluntary assurance. Additional control variables are examined. Here it appears that the demand for external assurance is highest in Great Britain. Finally, research opportunities in this field will be indicated and recent normative developments briefly sketched.

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Notes

  1. The terms used are nevertheless diverse. For a detailed presentation of the historical development of sustainability reporting, see Herzig/Schaltegger 2006, p. 304ff.

  2. An empirical study on the importance of the GRI standards records a significant increase between 2004 and 2006 of some 27 % of the companies listed on the HDAX that publish their sustainability information using the GRI guidelines. See Lackmann 2010, p. 121ff.

  3. See https://www.globalreporting.org/information/news-and-press-center/Pages/Sustainability-data-revealed-easily-with-new-reporting-format.aspx (available as of the 15th January 2013).

  4. Decision usefulness thus assumes both relevant and credible information. On the concept of decision usefulness, among others, see Wagenhofer/Ewert 2007, p. 105.

  5. However, the relevance of the study is limited because of the small size of the sample (the observation of forty French companies over 2 years); see Gillet and Martinez 2011, p. 13f.

  6. The costs of a voluntary assurance engagement of sustainability reports are not made public. For this reason company and report characteristics which are expected to determine the (gross) benefit of an audit service will be analysed below.

  7. On economically motivated corporate responsibility see also Schreck (2011, p. 749f.), who provides additional references.

  8. Related problems of the measurement of quality apply especially to the question of the weighted or unweighted transformation of individual criteria mentioned in the guidelines to a total score as well as the appraisal when a criterion has been fulfilled. On this point and also empirically on quality measurement of sustainability reports, see Quick/Knocinski (2006). Furthermore, see an analysis of the content of voluntarily published sustainability reports in accordance with the GRI guidelines (Gamerschlag et al. 2011).

  9. As measured by market capitalisation.

  10. The sustainability portal of the SAP AG, which in addition has a corresponding assurance report, is an example of a suitable reporting format. See http://www.sapsustainabilityreport.com/2009/ (available as of the 15th January 2013).

  11. Similar empirical examinations likewise use the model of logistic regression or the logit model. See, for example, Simnett et al. 2009, p. 945; Carey et al. 2000, p. 44 or Chow 1982, p. 284.

  12. The logistic regression was performed alternatively with the variable GRI-A as a dummy variable for the highest GRI application level. The results are comparable with the results of the model presented here.

  13.  The model was alternatively calculated with the size surrogates market capitalisation, sales revenues and size of the workforce. The results are very robust in relation to the variable GRI and the respective size surrogate. CSR is in the use of sales revenue and size of the workforce on the 5 % level significant and in the use of market capitalisation scarcely not significant.

  14. Provided that Germany or the Netherlands are defined as the reference category for the dummy variables, the respective other country variable (GE or NL) is weakly significant. This indicates in relation to the assurance decision that while a weak difference between Germany and the Netherlands can be ascertained, this difference does not exist between the two countries and Great Britain.

  15. An additional indicator for the existence of a mediation effect is the regression result after the inclusion of the interaction term CSR • SIZE, which despite the correlation between the two variables is not significant. In the case of a significant interaction term a moderator effect would thus be assumed. See explicitly on the demarcation of both effects Müller (2009, p. 237ff.).

  16. If a 99% confidence interval is used, the value null lies within the interval boundaries.

  17. Moreover, in order to examine for the variable GRI any interactions with other variables, both the interaction terms GRI • SIZE and GRI • CSR were integrated into the multivariate regression analysis after previous centering. The interaction terms are not significant. The additional results are also robust in consideration of the modeling adjustments.

  18. Here see also the more recent developments in integrated reporting and the discussion paper referring to this matter in IIRC 2011 as well as Nolden/Richter 2012.

  19. Because of the variety of heterogeneous assurance reports, such a distinction was not possible. Even the subgroups of assurance reports with reasonable assurance as well as a combination of limited assurance and reasonable assurance in comparison to the group of assurance reports with limited assurance are too small for a proper statistical evaluation.

  20. See Clausen/Loew 2005, p. 70ff. with confirming empirical evidence based on interviews with various stakeholders. Even in the annual audit there are problems in the interpretation of auditor’s reports, although the report is issued in accordance with firmly established accounting and auditing standards. On the existing problems in this regard, see most recently, Gold/Gronewold/Pott 2012.

  21. However, the study by Hodge et al. 2009 is subject to numerous limitations; especially the involvement of MBA students as proxy for non-professional investors limits the validity of the study; see ibid., p. 190.

  22. The goal is the improvement of the structure of the assurance standard. A corresponding discussion draft was published in April, 2011. See http://www.ifac.org/publications-resources/isae-3000-revised-assuranceengagements-other-audits-or-reviews-historical-fi (available as of the 15th January 2013).

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Ruhnke, K., Gabriel, A. Determinants of voluntary assurance on sustainability reports: an empirical analysis. J Bus Econ 83, 1063–1091 (2013). https://doi.org/10.1007/s11573-013-0686-0

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Keywords

  • Voluntary assurance
  • Global Reporting Initiative (GRI)
  • Sustainability report
  • Principal-agent theory
  • Signalling

JEL classification

  • M42
  • M48
  • L84