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

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.

Citation

Phang, S.-Y., Adrian, C., Garg, M., Pham, A.V. and Truong, C. (2023), "COVID-19 pandemic resilience: an analysis of firm valuation and disclosure of sustainability practices of listed firms", Managerial Auditing Journal, Vol. 38 No. 1, pp. 85-128. https://doi.org/10.1108/MAJ-06-2021-3183