Abstract
Sustainability reporting has become an issue of major concern in the corporate world today. In recent times, investors have become more concerned about sustainability; hence sustainability has the potential to influence a firm`s performance. This research examined the effect of sustainability reporting on corporate performance of selected quoted manufacturing firms in Nigeria. To determine the association between sustainability reporting and corporate performance, data was obtained from the audited financial statements of manufacturing firms under study for a period of six years (2013-2018). The result of the study shows that Economic performance disclosure (ECN), Environmental performance disclosure (ENV) and Social performance disclosure (SOC) have no significant effect on return on asset (ROA) of selected quoted firms in Nigeria.
TABLE
OF CONTENTS
Acknowledgement iv
Dedication v
Abstract
viii
CHAPTER
ONE: INTRODUCTION
1.1 Background
to the study 1
1.2 Statement of
the problem 2
1.3 Objective of
the study 3
1.4 Research
questions 4
1.5 Research
hypothesis 4
1.6 Significance
of the study 5
1.7 Area of the
study 6
1.8 Scope of the
study 6
1.9 Limitation
of the study 7
CHAPTER
TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual
framework 8
2.1.1 An
overview of firm’s performance 12
2.2 Sustainability
reporting on firm’s financial performance 13
2.3 Theoretical
framework 14
2.3.1 The
utilitarian theory 15
2.3.2 External
financial reporting theory 16
2.3.3 The triple
bottom line theory
16
2.4 Empirical
review 17
CHAPTER
THREE: METHODOLOGY
3.1 Research
design
26
3.2 Population
of study 26
3.3 Sample size
and sampling technique 26
3.4 Source of
data 26
3.5 Data
analysis
27
3.6 Definition
of variables 27
3.6.1
Independent variable 27
3.6.2 Dependent
variable 27
3.7 Model specification 28
3.8 Limitation
of the methodology 29
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data
presentation 30
4.2 Data
analysis 35
CHAPTER
FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary of
findings 36
5.2
Conclusion
37
5.3
Recommendation 37
CHAPTER ONE
INTRODUCTION
1.1 Background to the study
Today, corporate executives
confront a dynamic and tough task in endeavoring to apply local community moral measures to liable business activities. Be
that as it may, there is a lot of vagueness and instability about what sustainability accounting truly
means and its effect on the performance of firms worldwide (Henriques and
Richardson, 2013). Sustainability reporting has become a key part of business practice over
the past ten years especially those firms who engage in activities that are
harmful to the environment which the oil and gas industry is a key player in
this act (Asaolu, Agaoola, Ayaoola & Salawu, 2011). As a result of such
practice and regulations that have come on board, many oil and gas companies in
preparing their financial reports dedicate a section of their financial reports to
Sustainability reporting, marking and pointing out the importance they attach
to such activities. Sustainability reporting has
become an integral part of business
practice over the last decade or so. In fact, many
corporations dedicate a section of their annual reports and
corporate websites to sustainability reporting, illustrating the importance
they attach to such activities. But do such
activities create value for the firm’s shareholders or
do they focus too much on other stakeholders,
thereby lowering firm value and performance?
Whatever are the
inspirations driving sustainability reporting hypotheses, it is likewise
interpreted as the idea of triple bottom line
("People, Planet, Profit") which according to Henriques and
Richardson, (2013) catches an extended range of
qualities and criteria for measuring company’s achievement; economic,
ecological and social. Though business
morals and corporate governance join to create the means to accomplish organizational superiority, the genuine test is the point at which this
greatness is changed over into corporate sustainability and here, sustainability reporting assumes a
noteworthy role (Cohen and Bakker, 2014). Different perspectives have been offered to clarify the significance or
generally of sustainability reporting in business operations. As far as
concerns them, neoclassical business analysts propel that the organizations ought to give their energies to providing
products and services to their clients, they ought to minimize costs and increase profits; and this ought to,
obviously, occur within the boundaries of the laws and standards/regulations of the domicile state (Marks, 2012).
Surely, a few advocates of this perspective go similarly as to contend that sustainability reporting is not just an
avoidance from the core business of creating wealth, subsequently serving to limit rivalry, but on the other hand is a
financial (cost) burden on the company (Bai, and Chang, (2015).
Despite much research on the
topic few firm conclusions can be drawn, except that the literature is divided. Although there
appears to be more support for the view that sustainability
reporting activities are positively related to profitability and
firm value, a large number of studies find the opposite
relation. As a result, the normative implications of research on sustainability
reporting are still uncertain. The
relation between sustainability reporting and firm performance is
unclear partly because of methodological concerns (Margolis
and Walsh 2001) and, in particular, model misspecification.
Even more important is, perhaps, the lack of understanding
about the channels through which sustainability
reporting affects firm performance. Most theoretical models assume a direct
link between Sustainability Accounting and firm performance. In
this study, we propose an indirect link. In particular, we rely on Nnamani,
Onyekwelu and Ugwu (2017) insight that firms should adopt sustainability
accounting initiatives to enable them identify allocate and measure
environmental and social cost affecting the business and provide managers with
strategies and techniques for managing corporate environmental, social,
economic and financial performance. We focus on one of
the key Performance indexes (Financial performance) and suggest that
a necessary condition for Sustainability activities to modify the way
it is reported and, hence, affect firm performance. Are consumers
aware of firm Sustainability activities? Moreover, it is argued
that consumers are less likely to respond to Sustainability reporting
activities, even if they are aware of them, if then Sustainability reporting
activities are not aligned with the firm’s reputation (Schuler and
Cording 2006). In this study, we revisit the
effect of Sustainability accounting on firm’s performance, taking into account
the concerns mentioned above.
1.2 Statement of the problem
During the fifties and sixties of the 19th century
people all over the world became more concerned about the quality of their
environment. Well known environmental tragedies, like the cause of mercury
poisoning in mina mate (Japan), severe smoke pollution episode in London and
massive oil spill caused by Terry Canyon accident reinforced in people’s mind
the sense that the quality of air, water and a wide range of natural resources
was being seriously degraded. As a result, there became a need for
manufacturing firms to be environmentally responsible in their business
activities in other to sustain the ecosystem (Bassey, 2013). Notwithstanding, most firms in Nigeria are seen to be sustainable
irresponsible as their financial report are found not to be disclosing
information relating to the cost of environmental hazards and other
sustainability activities affecting the society as a result of their
activities. This is because the firms are not aware of the effect of such
sustainable cost disclosures on their financial performance (Nadeem,
2012).
Despite much research on the
topic few conclusions can be drawn as most manufacturing companies who engage in such activities are
not quoted and cogent data about their operations cannot be readily accessed.
While, authors like, Cortez and Cudia (2011); Nnamani, Onyekwelu & Ugwu
(2011) support the view that sustainability reporting activities are positively related to
profitability of firms, Authors like Umoren, Akpa & Okafor (2018); Uwaigbe et al
(2012) find the opposite relation. As a result, the normative implications of research
on Sustainability reporting are still uncertain as both opposing
authors used cost concept to measure sustainability reports of the firm.
Therefore, this study will examine the effect of sustainability reporting on the financial
performance of listed manufacturing
firms in Nigeria with which its findings will be used in analyzing sustainability
reporting in Nigeria from the perspective of an underdeveloped economy using
content analysis approach to see whether result from this study is in
conformity with results obtained from that of developed economies and previous
studies.
1.3 Objectives of the study
The main objective of this study is
to examine the effect of Sustainability
reporting on financial performance of listed manufacturing firms in Nigeria but its specific objectives
includes to:
i.
Examine the effect of Sustainability reporting on profitability
of listed manufacturing firms in
Nigeria.
ii.
Ascertain the effect of Sustainability reporting on liquidity
of listed manufacturing firms in
Nigeria.
iii.
Examine the effect of Sustainability reporting on earnings
of listed manufacturing firms in
Nigeria.
1.4 Research Questions
The following raised research
questions are expected to be answered in the course of this study;
i.
To what extent does Sustainability reporting have an effect
on the profitability of listed manufacturing firms in Nigeria.
ii.
What is the effect of Sustainability reporting on the
liquidity of listed manufacturing firms in Nigeria?
iii.
To what extent does Sustainability reporting affect the earnings
of listed manufacturing firms in Nigeria
1.5 Research Hypotheses
The following null hypothesis has
been formulated to guide the researcher in the investigation.
Ho1: Sustainability reporting has no
significant effect on profitability of listed manufacturing firms in Nigeria.
Ho2: Sustainability reporting has no
significant effect on liquidity of listed manufacturing firms in Nigeria.
Ho3: Sustainability reporting has no
significant effect on earnings of listed manufacturing firms in Nigeria.
1.6 Significance of the Study
This research serves as an
extra contribution to the current work of different authors that has talked about issues on sustainability reporting, for example, (Laura
& Sergio, 2009; Nicholas & Peter, 2010; Untung & Rusdiah 2015) as it goes further to
analyze how different drivers that encompassing sustainability
accounting, how they influence companies' profitability and it will be
helpful for;
Managers: in settling on reasonable
and budgetary decisions that will be of benefits to the host community where
they carryout businesses.
Investors: will grow in their insight
on the study subject and how relevant it is to set aside funds for
sustainability activities.
Government: Will gain more
knowledge and see a need to make laws that enhance more sustainability
activities by the firm. The central
point of this study is to analyze the effect of sustainability accounting on
the performance of listed firms in Nigeria which will also serve as a check on
the side on the government in line with its regulations concerning the rules
set for firms giving back to the host communities of operation as compensation.
Academics: The study will serve as a
reference point for further research.
1.7 Area of the study
The study of sustainability
reporting is broad as many authors have view the subject in different
perspective. This study will attempt to focus on the various level of
sustainability cost disclosures of the firms to ascertain the level of sustainability
reporting carried out by the firms. Also, on the aspect of the firms’ financial
performance; the study will be restricted to the area of profitability,
liquidity and earnings per share as measures of the firm’s financial
performance.
1.8 Scope of the Study
The scope of this study is limited
to the listed manufacturing firms in Nigeria. This study will specifically take
into consideration listed cement manufacturing firms that engage in the harsh
environmental degrading activities next to the oil and gas industry. This as a
result of their activities which is capable of causing environmental social and
economic issues to the host community. The scope of this study in relation to time
covers a period between 2013-2018 (i.e. a period of 6 years) which indicates
that the study considers a period which is more recent in relation to the
availability of data.
1.9 Limitations of the Study
Although
this study will be scientifically carried out, there will still be potential
limitations of the study that should be taken into consideration.
The
current research is restricted only to the listed cement manufacturing firms. Furthermore, this research will mainly
be conducted based on secondary data collection. The other data collection
methods will not be considered. As a result, they may not be 100% accurate. In
addition to these, data representing the period of 2013 to 2018 will be used
for the study. The research will compile a large database of listed cement companies accounting data that demonstrate what will be
done even with the limitations of currently available data.
More
so, the data that will be used in this study were prepared on a historical
basis which is one of fundamental problem associated with presenting accounting
information. This thus makes it impossible for current causation to be
inferred. However, the use of regression analysis which will try to establish
causation effect between the dependent and independent variables in the
analysis of data which will help to validate this study’s findings to greater
extent.
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