The impact of sustainability assurance levels on market capitalization: the case of French firms

Abstract

Purpose

This study aims to examine whether the financial market rewards the sustainable companies by investigating the impact of sustainability assurance levels on market capitalization of the CAC 40 firms. This analysis is complemented by examining the role of company characteristics to investors, providing a clearer picture of the functioning of the capital market.

Design/methodology/approach

To analyze the effect of sustainability assurance levels on market capitalization for the period 2011–2021, this study used a simplified version of the linear information model which is based on Ohlson model (1995) and Crouse (2007). This model is a multiple linear regression model which will be applied to panel data.

Findings

The study found that sustainability assurance levels negatively impact market capitalization. Higher investment decisions occur when sustainability reports have limited assurance, likely due to resource waste and costs exceeding income. In addition, net income, corporate social responsibility (CSR) indexes, leverage and performance significantly influence market capitalization.

Practical implications

This study offers valuable insights for both companies and investors, providing guidance on making investment decisions based on varying levels of sustainability assurance.

Originality/value

The current study sheds light on a relatively unexplored area regarding the connection between sustainability assurance and market reaction. Hence, this research focuses on a novel aspect of sustainability assurance by investigating how firm visibility in terms of sustainability practices impacts market capitalization.

Citation

Klibi, E., Damak, S. and Elwafi, O. (2024), "The impact of sustainability assurance levels on market capitalization: the case of French firms", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-03-2024-0162