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The impact of sustainability assurance and financial performance

of a company on non-professional investors’ decisions

Name: Jeroen van der Voort Student number: 11420804

Thesis supervisor: Razvan Ghita MSc Date: June 25, 2018

Word count: 12.508

MSc Accountancy & Control, specializations Accountancy & Control Faculty of Economics and Business, University of Amsterdam

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Statement of Originality

This document is written by student Jeroen van der Voort who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

‘In this research, I conducted a 2 x 2 experiment to investigate the interaction effect between external assurance of sustainability information and the financial performance of the company on non-professional investors’ decisions. The experiment consist out of the two following manipulations: external assurance of environmental, social and governance (ESG) indicators (present vs. absent) and the financial performance of a company (profitable vs. loss-making). To examine the investors’ decision-making process, I use the following three dependent variables: the perceived credibility of ESG indicators, perceived relevance of ESG indicators and finally the willingness to buy shares. The experimental results show that the interaction effect between external assurance of ESG indicators and financial performance is positive and significant related to the perceived credibility of ESG indicators. There is no supporting evidence that there is a significant interaction effect between sustainability assurance and financial performance on the perceived relevance of ESG indicators and willingness to invest in the company. The mediation analysis show that the effect of financial performance on the willingness to invest is mediated via perceived credibility of ESG indicators and perceived relevance of ESG indicators. Concluding, the findings show that sustainability assurance has no significant signaling effect on the investment decisions of non-professional investors in this experimental setting.’

Keywords:

Environmental Social Governance (ESG) indicators; sustainability assurance; financial performance; non-professional investors.

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Contents

1 Introduction ... 6

2 Literature review and hypotheses development... 8

2.1 Sustainability information and sustainability assurance ... 8

2.2 Non-professional investors’ decisions ... 9

2.2.1 Perceived credibility of ESG indicators ... 10

2.2.2 Perceived relevance of ESG indicators ... 10

2.2.3 Willingness to buy shares... 11

2.3 The effect of sustainability assurance on non-professional investors’ decision ... 12

2.3.1 Effect of external assurance on the perceived credibility of ESG indicators .... 12

2.3.2 Effect of external assurance on the perceived relevance of ESG indicators ... 14

2.4 Interaction effect between financial performance and sustainability assurance ... 15

2.4.1 Interaction effect on the perceived credibility of ESG indicators... 15

2.4.2 Interaction effect on the perceived relevance of ESG indicators ... 16

2.4.3 Interaction effect on willingness to buy shares ... 17

3 Research method and design... 19

3.1 Research design ... 19 3.2 Participants ... 20 3.3 Independent variables ... 24 3.4 Dependent variables ... 24 3.5 Manipulation checks ... 25 4 Empirical results ... 26

4.1 Perceived credibility of ESG information ... 26

4.2 Perceived relevance of ESG information ... 28

4.3 Willingness to invest ... 30

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5 Discussion and conclusion ... 35

6 References ... 38

Appendices ... 41

Appendix 1: Display logic ... 41

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1 Introduction

In this paper, I examine the interaction effect between assurance of sustainability information and financial performance of a company on the investment decisions of non-professional investors. This research is mainly based on the paper of Cheng, Green and Ko (2014). They examine the effect of strategic relevance and sustainability assurance on non-professional investors’ decisions. One of their future research suggestions is about the effect of financial performance and sustainability assurance on the decisions of non-professional investors. Hence, I use the paper of Cheng et al. (2014) as starting point of this research.

The research on sustainability reporting is increasing, because multiple stakeholders (society, investors and media) demand more disclosures of sustainability performance in the annual reports (Cohen, Holder-Webb and Nath, 2011). Theevolution of sustainability reporting already started in the 1970s with environmental reporting (Perez & Sanchez, 2009). In 2017, 93% of the 250 largest companies worldwide are publishing a certain sustainability report (KPMG, 2017). The newest trend in sustainability reporting is integrated reporting. Which is a combination of the financial report and the sustainability report (IIRC, 2013).

The goal of integrated reporting is to integrate non-financial sustainability measures with financial reporting to improve the decision-making and to create value for the firm on the long-term (Adams et al., 2011; Ballou et al. 2012; Cheng et al. 2014). This research is focused on both aspects of integrated reporting, namely: sustainability assurance and on the financial performance of the company. Subsequently, I examine the effect of these two aspects of integrated reporting on the investment decisions of non-professional investors. Therefore, this study examines the effects of integrated (financial and sustainability) reporting on investors’ decisions.

The interest of researchers, investors and assurance providers about assurance on sustainability is increasing (Cheng et al., 2014; Cohen et al., 2011). However, there is still limited research available. Cheng et al. (2014) and Pflugrath, Roebuck & Simnett (2011) examined the effect of sustainability assurance on investors’ decision-making process. Hence, this research is the third one which examines the effect of sustainability assurance on investors’ decisions. Coram et al. (2011) examined the effect of positive and negative information on investors’ decisions. Therefore, this study mainly combines the knowledge of Coram et al. (2011) with the knowledge of Cheng et al. (2014) and Pflugrath et al. (2011) to answer the following research question:

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RQ: ‘’What is the effect of external assurance of a sustainability report on non-professional investors’ decisions and is this effect influenced by the financial performance of a company?

I conducted a 2 x 2 experiment to examine the interaction effect of sustainability assurance and financial performance on non-professional investors’ decisions. In the experiment, I manipulate financial performance (profitable vs. loss-making) and sustainability assurance (present vs. absent). The 190 participants received an experimental study and were randomly assigned to one of the four conditions. The findings of the experiment are inconsistent with the predications which were based on the prior literature about sustainability assurance. Contradictory to the findings of Cheng et al. (2014) and Pflugrath et al. (2011), the results of this experiment show no significant positive impact of sustainability assurance on the investment decisions of non-professional investors.

The difference between the outcomes of this study and the prior studies about sustainability assurance and non-professional investors’ decisions (Cheng et al., 2014; Pflugrath et al., 2011) might be caused by the proxy for non-professional investors. In this research, I use people without investment experience in stocks or shares of a company (Prolific filter). The characteristics of these participants differ compared to proxy of the prior researches, which used MSc students with an accounting background. Therefore, the difference between the proxy of non-professional investors might influences the results of this research compared to the other researches about sustainability assurance.

This research is structured as follows. The first chapter contains a literature background and the development of the hypotheses and research question. Second, the research method and design are presented. The following chapter displays the results and analysis of the experiment. Finally, the conclusion and discussion are presented. In the discussion I compare the results with existing literature, provide the limitation of this study and present suggestions of further research.

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2 Literature review and hypotheses development

This study examines the effect of external assurance on sustainability information and if this is influenced by the financial performance of a company on non-professional investors’ decisions. This chapter provides a literature background based on prior academic researches, which results in the development of the hypotheses. The literature review is structured as follows. First, a brief literature review about sustainability information and assurance on it is provided. Secondly, the measurement of non-professional investment decision-making process is presented. The third section examines the effect of external sustainability assurance on the non-professional investment decisions. The final part is focused on the interaction effect between external assurance on ESG indicators and the financial performance of a company.

2.1 Sustainability information and sustainability assurance

First, I briefly describe the development of sustainability reporting. The evolution of sustainability reporting started in the 1970s with environmental reporting (Perez & Sanchez, 2009). In 2017, 93% of the 250 largest companies worldwide are publishing a certain sustainability report (KPMG, 2017). The newest trend in sustainability reporting is integrated reporting. Which is a combination of the financial report and the sustainability report (IIRC, 2013). At the moment, approximately 15% of the G250 publishes integrated reports (KPMG, 2017). This is a significant difference compared to the 93% of the total of the 250 largest companies worldwide. The reason behind it is that IIRC struggles to get support for integrated reporting (Humphrey, O’Dwyer, & Unerman, 2017). Therefore integrated reporting is not the standard for sustainability reporting at the moment. The most companies are using the GRI G4 framework, namely 75% of the G250 companies (KPMG, 2017). In this study, I use the environmental, social and governance (ESG) indicators as sustainability information in the experimental case. This in consistent with the research of Cheng et al. (2014), which also used ESG indicators as sustainability information.

Second, I briefly discuss the assurance on sustainability performance. The difference compared to assurance on financial statements is that the assurance on financial statements is mandatory and the assurance on sustainability information is voluntary (Coram et al., 2009). Hence, the management has the choice to acquire a third party to provide assurance on the sustainability performance. According to the assurance on ESG indicators, there are different guidelines of assurance on sustainability information. AA1000 (ISEA, 2003) and ISAE 3000 (IAASB, 2004) are examples of sustainability assurance standards. The most used framework

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is ISAE 3000 as basis for assurance on sustainability reports. Further in this research, the expected effect of assurance on ESG indicators is given. Therefore, this paragraph only provides a brief overview about the development of sustainability reporting and sustainability assurance. In this research, I use a fictive audit report on sustainability information as an example of sustainability assurance. This audit report is based on the experiment of Coram, Monroe and Woodliff (2009), which also examined the effect of assurance on voluntary non-financial information. In my experiment the half of the participants receive a report with and the other half without sustainability assurance.

2.2 Non-professional investors’ decisions

I focus on the perceived credibility and perceived relevance of the sustainability information, because both factors influence the investment decisions of non-professional investors (Mercer, 2004; O’Connell, 2007; Dawes, 2010). In figure 1, the investment decision-making process of non-professional is displayed. This paragraph is focused on the decision-making process of non-professional investors. I use the same measures as Cheng et al. (2014), to determine the decisions of the professional investors. According to this research, the decisions of non-professional is determined by the perceived credibility and perceived relevance of the sustainability information. Cheng et al. (2014) find that perceived relevance of the sustainability information influences the decision-making of non-professionals. However, they were not focused on the influence of the perceived credibility in their research. Cheng et al. (2014) only used perceived credibility as a manipulation check and therefore did not deepen into this in their analysis. This is not in line with the role of financial reporting (O’Connell, 2007). The role of accounting is split into two parts: decision usefulness and stewardship role. Decision usefulness means that the disclosed information is relevant for the investors’ decisions. The stewardship role accounting assumes that the information is true and provides a fair view of the company’ performance (Dawes, 2010). Therefore, the perceived credibility measures the stewardship role of accounting in this research. Cheng et al. (2014) also measured the decision usefulness of the ESG information, however they are not focused on the stewardship role of accounting. The content of this paragraph is as follows. Firstly, I discuss the effect of perceived credibility on the investment decisions. The second part is about the effect of perceived relevance on investment decisions. Finally, the last dependent variable, namely the willingness to buy shares is explained.

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Figure 1: Non-professional investors’ decision-making process

2.2.1 Perceived credibility of ESG indicators

According to Mercer (2004) framework and the stewardship role of accounting (O’Connell, 2007; Dawes, 2010) the perceived credibility of information influences the decision-making of investors. The reason for it is that when the investor have more trust in the information, they are more likely to invest in the shares of that company. The stewardship role is introduced to provide reliable information towards the stakeholders of the company. Cheng et al. (2014) measured the credibility of the ESG indicators to determine if assurance enhances the credibility of the ESG indicators. They used the perceived credibility as a manipulation check to determine if the participants understand the effect of external assurance. The difference compared to Cheng et al. (2014) is that I use perceived credibility as dependent variable for the investors’ decisions instead of a manipulation check.

2.2.2 Perceived relevance of ESG indicators

The perceived relevance of ESG indicators is the second dependent variable that is used to measure the non-professional investment decision-making process. The perceived relevance is a measure of the decision usefulness of ESG indicators. ESG is an abbreviation of environmental, social and governance indicators. Those indicators are used to describe the sustainability situation of the company in the experiment. The perceived relevance is according to the findings of Cheng et al. (2014) influencing the investment decision process of a non-professional investor. Hence, non-non-professional investors perceive the ESG indicators as more relevant when there is assurance provide on it. Cheng et al. (2014) used the perceived relevance of the ESG indicators as the second dependent variable.

Perceived credibility of ESG information (stewardship)

Perceived relevance of ESG information (decision usefulness)

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2.2.3 Willingness to buy shares

The final measure that is used to examine the investment decision of the non-professional is the willingness to buy shares of the company. The main focus of this research is on the investment decisions. Therefore, in the first question the non-professionals use their own intuition to determine the willingness to buy shares. The next part of the questionnaire contains questions about the perceived credibility and relevance of the sustainability information. Hence, the willingness to buy shares provides reliable information about the non-professional investor’ decisions. Cheng et al. (2014) also used the willingness to buy shares to examine the effect of sustainability assurance on the non-professional investors’ decisions. Finally, I examine the mediation effect of perceived credibility and perceived relevance on the willingness to buy shares.

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2.3 The effect of sustainability assurance on non-professional investors’ decision

The content of this paragraph is focused on the effect of external assurance on non-professional investor decisions. The first section determines the effect of sustainability assurance on the perceived credibility of the ESG indicators. At the end of this part the hypothesis is provided. The second part is about the effect of external assurance on the perceived relevance of the sustainability information. This part also ends with a hypothesis about the effect of sustainability assurance on the perceived relevance.

2.3.1 Effect of external assurance on the perceived credibility of ESG indicators

The framework of Mercer (2004) is used to examine the effect of external assurance on the credibility of ESG indicators. This framework suggests that external assurance is one of the determinants of the credibility of disclosed information. However, there is a difference between assurance on financial information compared to non-financial information. The assurance on sustainability information is not cost-neutral, which means that the company has to voluntary pay the assurance provider for assurance on their reported sustainability information. The assurance on financial information is mandatory when a company meet certain criteria, therefore it has less effect on the perceived credibility of information compared to sustainability assurance (Aguinis & Glavas, 2012). The prior researches suggest, despite the costs, that there are several reasons behind the companies’ voluntary purchase of assurance services on their sustainability reports (Cheng et al., 2014).

The first reason is that assurance reduces the information asymmetry between the company and their lenders, which will lower the interest costs of the company (Blackwell, Noland & Winters, 1998). Secondly, assurance enhances the reliability and credibility of the assured sustainability report (Hodge et al., 2001; Cheng et al., 2014; Coram et al., 2009). Thirdly, the forecast errors by investment analysts reduces when the sustainability information is assured (Dhaliwal et al., 2012). The final reason is to address investors’ concerns about the reliability and credibility of the sustainability information (Barnea & Rubin, 2010).

However, does assurance affect the users of the financial statements their decisions? Experimental studies’ evidence indicates that assurance has a positive effect on the credibility of the sustainability reports (Hodge et al., 2009; Cheng et al., 2014; Pflugrath, et al., 2011; Coram et al., 2009). On the other hand, there are different factors which influence the effect of assurance on the level of credibility of the information. In the following situations there is a different effect of external assurance on the perceived credibility of the provided information.

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Firstly, the study of Hodge et al. (2009) examines whether the type of assurance providers and level of assurance affect the investment decisions. They find significant differences between the type of assurance providers (top tier audit firm or specialist consultant) and the level of assurance (reasonable or limited). The perceived credibility of sustainability information is higher when the assurance is provided by a top tier audit firm. However, the difference only occurs when the level of assurance on the ESG information is reasonable. Therefore in this study, the external assurance on the ESG indicators is from a top tier accounting firm and the type of assurance is reasonable.

The second situation is related to the nature of the assured information. Several prior studies find that the effect of assurance on investors’ decisions varies, this depends on the nature of the assured information. Pflugrath et al. (2010) examined the interaction effect between sustainability assurance and industry of the underlying firm (mining industry vs retail industry). The effect of assurance on investors’ decisions is higher when the firm is from the mining industry, because this industry deals with a lot of environmental problems. Cheng et al. (2014) examined the effect interaction effect between sustainability assurance and the strategic alignment of the ESG information. They find that the effect of assurance on ESG indicators is higher when the ESG indicators are aligned with the strategy of the company. Cohen et al. (2011) examined the effect of investor characteristics on the use CSR information. They find wealthy, female and young investors are more interested in the CSR information compared to the less wealthy, male and older investors.

Concluding, several prior studies already examined the effect of assurance of sustainability information on non-professional investors’ decisions (Hodge, Subramaniam & Stewart, 2009; Cheng, Green & Ko, 2014; Pflugrath, Roebuck & Simnett, 2011; Coram, Monroe & Woodliff, 2009). The findings of those researches indicate that external assurance has a positive effect on the credibility of ESG indicators. Although, the effect of assurance differs in several situations. Firstly, the effect of assurance is higher when it is issued by a big audit firm and issued with reasonable assurance (Hodge et al., 2009). Secondly, the effect is bigger when the ESG information is strategic relevant (Cheng et al., 2014). Hence, I use reasonable assurance from a big four auditor, which is also strategic relevant, in my experimental case. Based on the previous studies I predict the following:

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2.3.2 Effect of external assurance on the perceived relevance of ESG indicators

The external assurance does not only affect the perceived credibility of sustainability information, but also the perceived relevance of it. This is supported by the signaling theory (Spence, 1973). Hence, this theory is used to explain the effect of assurance on the perceived relevance of the ESG indicators. The signaling theory assumes that a company has an incentive to report value-revealing information as a signal to the market (Cheng et al., 2014). Prior research examined the effect of financial disclosure and the disclosed information, which is used as the object to assurance. Those prior researches (Healy and Palepu, 2001; Miller, 2002) find support for the signaling theory. The findings also suggests that the management’s aim of signaling is to provide the users’ information needs. This means that the sustainability information is more relevant when it is supported by voluntary paid external assurance.

The signal of reporting ESG information is to provide an environmental reputation of the reporting firm (Cho et al., 2010). The incentive to signal is higher for a company with proactive, but unobservable environmental strategies (Clarkson et al., 2008). Companies with high-quality disclosures have incentives to signal high quality information to separate themselves from other competitors with lower quality environmental disclosures. The companies disclose ESG information to encounter several issues. Firstly, the companies want to encounter the suggestion of greenwashing (Lyon and Maxwell (2011): spending more money and time to claim that they are green instead of actually implementing business processes reduce the impact on the environment). Secondly, to encounter that the companies only disclose good environmental news. Finally, to indicate that their ESG information is credible (Cho et al., 2010; Lyon and Maxwell 2011).

Based on the signaling theory and the findings above, there is difference between the signal of ESG information when the voluntary assurance is present of absent. When the assurance is absent the information is maybe seen as: ‘’simply and advertisement for the company and not a signal for future corporate value (Mock et al., 2007)’’. Therefore I conclude, in according with Cheng et al. (2014), that when assurance is voluntary, the perceived relevance for investors of sustainability reports can be signaled as more relevant through assurance. According to this, I expect the following effect between:

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2.4 Interaction effect between financial performance and sustainability assurance This research is focused on the effect of external assurance of sustainability information on non-professional investors’ decision and examines if financial performance influences this effect. According to Mercer’s (2004) framework there are several determinants of credibility of disclosed information. In this paper, I examine the interaction effect between two of the determinants of the framework: external assurance and the situational incentives (financial performance). The effect of sustainability assurance on the credibility of information is already hypothesized in the prior paragraph. The focus in this paragraph is on the interaction between sustainability assurance and financial performance on non-professional investors’ decisions. The first part is about the interaction effect on the perceived credibility of ESG indicators. Secondly, the interaction effect of perceived relevance is discussed. The final part contains the interaction effect of financial performance of a company and the sustainability assurance on ESG indicators on the willingness to buy shares of a company.

2.4.1 Interaction effect on the perceived credibility of ESG indicators

Existing literature assumes that situational incentives have an influence on the perceived credibility of investors (Mercer, 2004). There is actually a difference between the situational incentives of financial information compared to non-financial information. The disclosure of financial performance is mandatory and therefore managers have less discretion to influence those (Coram et al., 2009). Hence, I focus on the effect of sustainability assurance instead of financial assurance, which is mandatory. ESG information is voluntary and therefore the managers have a choice to disclose this information. Another reason for a bigger effect of situational incentives is that when the performance of the managers is based on the stock performance of the company (Coram et al., 2009). The attribution theory of Feldman (1981) supports that situational incentives influences the perceived credibility of the disclosed information.

The attribution theory assumes that investors are looking for supplementary credibility signals when assessing information that is seen as incentivized (Feldman, 1981). This theory is also used in social psychological research. The psychological researches find that people perceive information more persuasive when the source is not incentivized. Positive information (financial performance profitable) is more likely to be seen as incentive consistent (Coram et al., 2009). The management is therefore more likely to voluntary disclose sustainability information when the financial performance is positive to meet certain targets to receive a

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bonus for it. Hence, users of the financial statements perceive positive information disclosures as self-serving for the management. Hutton et al. (2003) support the attribution theory, because their findings suggest that providing supporting information does not have an effect on stock price forecast when this information is bad news. Based on the attribution theory and Mercer’s (2004) framework I expect the following:

H2a: The effect of sustainability assurance on perceived credibility is higher when the financial performance of the company is profitable compared to loss-making.

2.4.2 Interaction effect on the perceived relevance of ESG indicators

There is also an interaction effect between external assurance and financial performance of a company on the perceived relevance of ESG indicators. This will be explained in this paragraph. Several researches already examined the effect of favorable/unfavorable information on the perceived relevance of investors. Hirst et al. (1995) examine the extent on how much investors rely on the disclosed information. In according with Mercer (2004), Hirst et al. (1995) find that investors determine the relevance of the disclosures by considering the situational incentives of the information. Investors rely less on reports which contain favorable information. On the other hand, when the reports contain unfavorable information the investors look at the content of the report to determine if the information is relevant or not. This is supported by the prospect theory (Kahneman et al., 1979).

This theory suggests that negative information has a bigger effect than positive information on the judgement of investors. In this case, the relevance of non-financial information (ESG indicators) would be higher when the financial performance is profitable compared to when the financial performance is loss-making. The findings of Ghosh and Wu (2013) support the prospect theory. They examined what the effect is on the relevance on non-financial information when the non-financial results are unfavorable. The findings of this research indicate that when the financial results are unfavorable, the non-financial results have no effect on the investors’ decisions. According to the prospect theory (Kahneman & Tversky, 1979; Ghosh & Wu, 2013) and the findings of Hirst et al. (1995), I expect the following interaction effect according to the perceived relevance of ESG indicators:

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H2b: The effect of sustainability assurance on perceived relevance is higher when the financial performance of the company is profitable compared to loss-making.

2.4.3 Interaction effect on willingness to buy shares

The willingness to buy shares of a company is the product of perceived credibility and perceived relevance of the ESG indicators. Prior studies indicate that there is a different effect between positive and negative information on the investors’ decision-making. The interaction effect between external assurance and financial performance of the company is based on the framework of Mercer (2004). This framework provides the determinants of the perceived credibility of disclosed information. My research is focused on two of these determinants, namely: external assurance and situational incentives (financial performance). The attribution theory (Feldman, 1981) and the prospect theory (Kahneman & Tversky, 1979) explain the interaction effect of financial performance and external assurance on non-professional investors’ decisions.

The attribution theory assumes that positive information is more incentivized compared to negative information, because managers have an incentive to disclose positive information (Feldman, 1981). Based on this theory I assume that positive information (financial performance profitable) is less credible compared to negative information (financial performance loss-making). The managers therefore have a bigger incentive to disclose non-financial information when the non-financial performance in favorable. The goal of assurance is to increase the level of credibility of the provided information. In the case of negative information the level of credibility is already high, because as mentioned above the management has less incentives to disclose negative information compared to positive information. Hence, the effect of external assurance on the ESG indicators would be higher when the financial performance is positive compared to negative financial performance.

The prospect theory on the other hand assumes that negative information has a bigger impact on the judgement of investors compared to positive information (Kahneman & Tversky, 1979). Therefore the ESG indicators are not relevant for non-professional investors’ decisions when the financial performance is negative. This theory was also supported by the findings of Ghosh and Wu (2013). Concluding, based on the framework of Mercer (2004), prospect theory (Kahneman & Tversky, 1979) and attribution theory (Feldman, 1981), my expectation is that there is an interaction between external assurance and financial performance of the company

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on the investment decisions of non-professionals. This expectation leads to the following research question:

RQ: Does assurance of an independent auditor on a sustainability reports increases the non-professional investors’ willing to invest the extent and would it be greater when the financial performance is profitable compared to loss-making?

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3 Research method and design

This chapter is focused on the research method and design of the experiment. I base my research mainly on prior the of research Cheng, Green & Ko (2014). Therefore a lot of the experiment is similar compared to Cheng et al. (2014). The following topics are included to give a proper overview of the research method and design. First, the research design will be explained. Secondly, there is an explanation about the participants who attended in the experiment. Moreover, I explain the measurement of the independent variables. In addition, the measurement of the dependent variables is provided. The final part contains an explanation about the manipulation checks which test if the variables are measured sufficiently.

3.1 Research design

I use an experimental case to test the hypotheses and to answer the research question of this paper. The experiment uses a 2 x 2 experimental design (appendix 1). The two independent variables are sustainability assurance (present vs. absent) and financial performance of a company (profitable vs. loss-making). The perceived credibility of the ESG information, perceived relevance of the ESG information and the willingness to buy shares based on the ESG and financial information are the dependent variables of this research.

The case I developed, as stated above, is mainly based on the research of Cheng et al. (2014). Therefore the case is referring to ESG measures which are reported by large retail companies. The results of Cheng et al. (2014) show that the ESG indicators are only relevant when the indicators are highly strategic relevant. Therefore I only use the ESG indicators which are highly strategic relevant. The manipulation of this research is related to the financial performance of the experimental company (profitable vs. loss-making)

The experiment is structured as follows (appendix 2). First, I will provide to the participants background information of a retail company. The company is called WMW and it operates in a national grocery chain (Cheng et al., 2014). In this part the participants also receive information that they inherited a sum of money and they can buy shares in WMW with it. In the second screen, the participants receive a part of the WMW’s annual report, in this part the CEO describes the strategy of WMW. In my research the highly strategic relevance is not manipulated and therefore I only use the highly strategic relevant part, because assurance only has an effect when the sustainability information is strategic relevant (Cheng et al., 2014).

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After the extract of the annual report, the participants receive some financial information of WMW. This part is the first manipulation in my experiment. One half of the participants will receive positive financial information (profitable). The other half will receive negative financial information of WMW (loss-making). The following part is the sustainability report of WMW containing the ESG indicators. The indicators increases compared to the previous, because I want to examine if positive ESG indicators could influence the investment decisions when the financial performance is unfavorable. Therefore this variable is not manipulated. However, this part contains the second manipulation of my experiment. Participants either receive independent assurance of an auditor on the sustainability information, or do not receive independent assurance on the ESG indicators.

After the participants read all the provided information about WMW, the participants answer questions about the dependent variables. First they need to answer questions about the willingness to invest in WMW. The following questions are about the perceived relevance of ESG indicators. Moreover, they need to answer questions about the perceived credibility of the provided sustainability information. The fourth part of the questions are used to check the manipulations and to display the demographic background of the participants.

3.2 Participants

There are 190 paid participants who participated in my experiment. I use Prolific database to obtain the participants of my research. To obtain data via Prolific, I have to pay £ 0.45 per participant. I use the following filter on Prolific to select for non-professional investors: people who have never invested in stock or shares of a company. To determine the background of the participants I added some questions at the end of the survey about the participants’ characteristics. Cheng et al. (2014) used MSc Financial Analysis students as the proxy for non-professional investors in their research, because they had access to those students due to the fact they work at this University. However, I do not use students as a proxy for non-professional investors, but I use people who never invested in stock or shares of a company (see above). This could be everyone without any investment experience of buying shares of a company. The participants need to draw uncomplicated connections between the received information and non-professional investors as defined above are capable enough to do this, according to prior literature (Elliott, Jackson, Peecher & White, 2014; Elliott, Hodge, Kennedy & Pronk, 2007).

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Table 1: Overview of the sample selection and the participants’ descriptives

Panel A: Sample selection

n %

Respondents completed the experiment 190 100%

Excluded:

- Failed manipulation check* -73 -38,4%

- Not completed all questions -2 -1,1%

- Excluded outliers** -13 -6,8%

Total respondents used in analysis 102 53,7%

Panel B: Participants' descriptives n %

Gender - Male 49 48% - Female 53 52% 102 100% Investment experience - No investment experience 82 80%

- Less than one year 14 14%

- Between one and three years 5 5%

- More than three years 1 1%

102 100%

Highest education level

- HBO bachelor degree 8 8%

- WO bachelor degree 33 32%

- WO master degree 9 9%

- WO post-master degree 1 1%

- None of the above 51 50%

102 100%

Education descriptive

- Economics and business 10 10%

- Law 1 1%

- Natural studies 9 9%

- Social and behavioral studies 17 17%

- None of the above 65 64%

102 100%

* 38, 4% of the actual participants failed one or two of the manipulation check questions. Hence, these participants are excluded for the analysis. One question is about the financial performance (profitable vs. loss-making) and the other question is about sustainability assurance (present vs. absent)

** After excluding the participants who failed the manipulation checks and those who not completed all questions of the experiment, I examined the 115 respondents' willingness to invest. The outliers are detected by creating a boxplot in SPSS (figure 3). Hence, the following participants are excluded, because they are outliers: 4, 8, 17, 19, 21, 27, 31, 35, 43, 89, 92, 108 & 110. The reason might be that the 13 outliers are respondents who invested < average (5), while the financial performance was profitable or invested > average (5), while the performance was loss-making. This indicates that those participants might just filled in the questionnaire without thinking about their investment decisions.

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Figure 3: Boxplot willingness to invest before excluding the outliers

The X-axis shows the four conditions of this study and the Y-axis shows the willingness to invest in this company. The boxplot shows that there are 13 outliers after excluding the participants who failed the manipulation checks. Hence, those 13 outliers are excluded when analyzing the data, otherwise the outliers might influence the outcomes of the study. When including those outliers the willingness to invest is higher when the assurance is absent compared to present (figure 4), which is contradictory to prior research (Cheng et al., 2014; Coram et al., 2011). Therefore, I excluded the 13 outliers and use the remaining sample (102 participants) in the analysis of the results in paragraph four.

Figure 4: Results of willingness to invest (before excluding the outliers)

Loss-making Profitable W il li ngne s to b uy s ha re ( H ighe r sc o re = m o re w illin g n es s to in v es t)

Willingness to buy shares (before excluding outliers)

Assurance - present Assurance - absent

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According to the prior literature (Koonce, Williamson & Winchel, 2010), I define non-professional investors as individual investors (opposite of institutional investors). The average age of the participants of my experiment is 30 years old. The other descriptives of the participants are displayed in Panel B (table 1). To determine if the results are biased by unequal deviation of participants per condition, I perform a Chi-squared test or Fischer’s Exact test (Field, 2014). Pearson Chi-squared test is only suitable when all the groups have an estimation above 5, otherwise the Fischer’s Exact test is used. Chi-squared test results according to gender indicates no unequal deviations between the conditions (χ2 = 2,243; p = 0,522). The Fisher’s

Exact test assumes an equal distribution of investment experience (χ2 = 8,287; p = 0,468).

Those with investment experience were not filtered out of the sample, because the question was about investment experience overall and not on investment experience in stock or shares of a company (filter of Prolific). The Fisher’s Exact test of education level indicates an equal deviation over the conditions (χ2 = 9,471; p = 0,692). Finally, the Fisher’s Exact test indicates

that the education type is not unequally divided over the groups (χ2 = 15,187; p = 0,160).

Table 2: Overview of the distribution between the four conditions

Condition Condition description n %

1 Financial performance profitable / ESG information with assurance

24 23,5%

2 Financial performance profitable / ESG information without assurance

24 23,5%

3 Financial performance loss-making / ESG information with assurance

29 28,4%

4 Financial performance loss-making / ESG information without assurance

25 24,5%

The experiment is conducted in the beginning of June 2018. The participants are randomly assigned to one of the four experimental groups (Cheng et al., 2014). The distribution of the analyzed participants between the four conditions is displayed in table 2. This table shows that the participants are approximately equally distributed across the four conditions. The random allocation is automatically done by the experimental software of Qualtrics. Therefore approximately the same amount of participants are allocated to one of the four groups. Concluding, the participants are equally distributed over the conditions and the participants’ characteristics do not bias the results of the experiment (Chi-squared test and Fisher’s Exact test show non-significant results, which means no bias in the participants’ characteristics). Hence, results are not biased and suitable for the analysis in the next chapter.

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3.3 Independent variables

The first independent variable of my experiment is external assurance on the ESG indicators. The participants receive a version with or without the external assurance of a big four auditor. According to the findings of Hodge et al. (2009), I use external assurance which is provided by a big four auditor and with a reasonable-level of assurance, because reasonable assurance provided by a big four auditor has a significant higher impact on the investment decisions (compared to limited assurance/consultancy firm). I only want to focus on the effect of voluntary assurance on sustainability information, because the assurance on financial is mandatory and therefore has a smaller effect on the investor’s decision.

The second independent variable is related to the financial performance of the company. In the experiment of Cheng et al. (2014) the financial performance of WMW is in all the four experimental groups the same (favorable performance), because their main focus is on the strategic relevance of the sustainability information. Therefore this manipulation is the main difference in comparison with the experiment of Cheng et al. (2014), because I want to focus on the effect of financial performance (profitable vs. loss-making) on the use of ESG indicators and the assurance on those indicators. The favorable version contains profitable and increasing financial performance of the company. The unfavorable version exists out of loss-making and decreasing financial performance. The manipulation of financial performance is strong, because a loss is seen as more negative information for a company compared to positive declining performance of a company.

3.4 Dependent variables

This experiment contains three dependent variable to determine the investment decisions of the non-professional investors. The first dependent variable is the perceived credibility of the provided ESG indicators. I will use a nine-point scale question to measure the perceived credibility. The scale differs from, not reliable at all (1) to highly reliable (9). The perceived credibility is measured to determine if the investment decisions is influenced by the level of perceived credibility of the provided sustainability information.

The following dependent variable is related to the perceived relevance of ESG indicators of the investment decision of the participants. In other words, is the provision of ESG indicators relevant for the decision-making process? The measurement of the second dependent variable is also done on a nine-point scale. The scale variates from, not important at all (1) to highly important (9). Cheng et al. (2014) find that the willingness to buy shares is

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influenced by the perceived relevance of the sustainability information. Hence, I also measure if the willingness of buying shares is influenced by the perceived relevance of ESG indicators.

The final dependent variable is the willingness to buy shares of WMW. After reading the provided information about the firm’s financial and sustainable performance the participants determine the willingness to invest their money in WMW. The participants can choose on a nine-point scale if they definitely will not buy shares of WMW (1) to definitely want to buy shares of WMW (9). Based on the final results of my experiment, I can answer the research question which is mentioned in the introduction of my thesis.

3.5 Manipulation checks

The goal of the manipulation checks is to examine if the participants understand the difference between the two manipulations. I use two manipulation checks in the post-experimental questionnaire. The first question is related to the first manipulation of my experiment, namely the financial performance of the company. The participants need to answer whether the financial performance of the company is (1) loss-making or (2) profitable. The second variable is related to the second manipulation (assurance on Environment, Social and Governance indicators). The participants have to choose between the following two options: (1) no assurance on the sustainability information and (2) assurance on the sustainability information.

To determine whether the participants would understand the experimental case I conducted a test experiment amongst my internship colleagues at KPMG and my fellow students of the MSc Accountancy & Control at the University of Amsterdam. Those test participants are a good proxy for the actual participants, because most of them have no investment background (non-professional investors). The test results show that 80% of the participants passed the manipulation checks. This means that they understand the variables which are manipulated. Hence, based on the test results I concluded the experiment was suitable for this research.

As mentioned in table 1, you can see that 38,4% of the actual participants failed one or two of the manipulation checks. This rate is similar compared to prior research of Brown-Liburd et al. (2012) and Cheng et al. (2014), which varies between 25-39 percent. A probable reason for it could be that those who failed these questions, mostly filled in the test faster than the expected 5 minutes and therefore not fully understand the whole case. Another reason could be that the participants have too less accounting knowledge due to the fact everyone was able to participate in the experiment apart from those with prior investment experience.

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4 Empirical results

In this chapter, I test the hypotheses based on the experimental results. This research is mainly based on the study of Cheng et al. (2014), because they also examined the impact of assurance on sustainability indicators on investors’ decisions. Firstly, I discuss the results of the perceived credibility of the ESG information. Second, I examine effect of sustainability assurance on the perceived relevance of the ESG information. Moreover, I examine the participants’ willingness to buy shares of WMW. I conducted an ANOVA test (Field, 2014) to examine the effect of sustainability assurance and financial performance on the investors’ decision-making process. Finally, I use the Hayes’ SPSS PROCESS tool (2013) to investigate the direct and indirect effects of perceived credibility and perceived relevance on the willingness to buy shares.

4.1 Perceived credibility of ESG information

The first hypothesis (h1a) of this study predicts that assurance has a positive effect on the perceived credibility of ESG information. To examine this effect, I compare the mean scores of perceived credibility between the four conditions by conducting ANOVA test (Field, 2014). Cheng et al. (2014) used the same method to report the findings of the experiment. The results are displayed in table 3. Panel B presents that assurance does not have a significant impact on the perceived credibility of sustainability information (F = 0,371; p = 0,544). Hence, h1a is not supported by the findings of this experiment. The reason for that might be the negative effect of assurance in the case of loss-making financial performance (table 3, Panel A, figure 3). The reason for the negative impact of assurance could be either that the participants in condition three and four did not understand the concept of assurance or the participants in condition four are more optimistic compared to condition three participants.

This study’s main focus is on the interaction effect of external assurance of a sustainability report and financial performance on investors’ decision. Therefore this research does not contain a hypothesis about the main effect of financial performance on perceived credibility of ESG information. The results in table 3 (Panel A) indicate that the participants perceive the level of credibility of ESG information as higher when the financial performance is profitable (6,38) compared to loss-making (4,96). The results of table 3 (Panel B) show that this effect is significant (F = 22,981; p < 0,000). Hence, these results indicate that the perceived credibility of sustainability information is higher when the financial performance is profitable. Prior researches were not focused on the effect of positive supporting information and negative financial information. Hence, an additional finding of this research is that positive supporting

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information is more credible when the financial performance is positive. A probable explanation could be that the participants do not believe that the sustainability performance cannot be positive while the financial performance is loss-making.

TABLE 3

Perceived credibility ESG indicators

Panel A: Means (Standard deviations)

Profitable Loss-making Row average

Assurance - present 6,92 4,69 5,70 (1,316) (1,538) (1,437) n = 24 n = 29 n = 53 Assurance - absent 5,83 5,44 5,63 (1,090) (1,474) (1,282) n = 24 n = 25 n = 49 Column average 6,38 5,04 5,67 (1,315) (1,541) (1,434) n = 48 n = 54 n = 102

Panel B: ANOVA results

MS F P

Assurance 0,703 0,371 0,544

Financial performance 43,508 22,981 0,000

Assurance * Financial performance 21,306 11,254 0,001 -

Figure 5: Interaction between financial performance and assurance on perceived credibility

Financial performance loss-making Financial performance profitable

Pe rce iv ed cr ed ib ili ty (H igh er sco re = h igh er cr ed ib ili ty )

Perceived credibility ESG information

Assurance - present Assurance - absent

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Finally, I examine the interaction effect between financial performance and external assurance of ESG information on perceived credibility. The interaction effect is the effect of financial performance and assurance together on perceived credibility of ESG information. In figure 5, the interaction between financial performance and external sustainability assurance on ESG indicators is displayed. Figures 5 shows that the when the financial performance is profitable, the effect of assurance on perceived credibility of ESG indicators is higher compared to negative financial performance. H2a forecasts that the effect of assurance is higher when the financial performance is positive. The findings in table 3 (Panel B) shows that the interaction effect between financial performance and assurance on perceived credibility is significant (F = 11,254; p = 0,001). Hence, based on the findings, h2a is supported.

4.2 Perceived relevance of ESG information

The experimental results of the perceived relevance of ESG indicators are discussed in this paragraph. H1b predicts that external assurance of sustainability information increases the perceived relevance of the ESG indicators. Table 4 (Panel A) shows that the difference between assurance present and absent is (5,40 – 5,30) 0,10. The difference of 0,10 is not significant (F = 0,208; p = 0,659). Hence, h1b is not supported by the findings of this experiment. Therefore this study does not provide evidence for the signaling theory (Cho et al., 2010; Lyon and Maxwell 2011).

Table 4, panel A and B, indicates that the financial performance of the company has a positive and significant effect on the perceived relevance of ESG information (F = 31,327, p < 0,000). This relationship is not hypothesized in the literature. However, this finding supports the prospect theory (Ghosh and Wu, 2013), which suggests that negative information has a bigger effect on the judgement of investors compared to positive information. In this case the participants perceive the additional sustainability information as less relevant when the financial performance is loss-making. Hence, based on the prospect theory and the experimental findings, investors perceive supporting ESG information as less relevant when the financial performance is loss-making and more relevant when the financial performance is profitable.

H2b assumes that the effect of assurance on perceived relevance is higher when the financial performance is profitable compared to a loss-making financial performance. To examine this relationship I conducted the ANOVA test (Field, 2014). In figure 6, the interaction effect is displayed in a graph, which shows that the financial performance has a significant

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impact on the perceived relevance of ESG indicators. In table 4 (Panel B), the results show that the interaction effect between financial performance and sustainability assurance is not significant (F = 0,010; p = 0,919). Therefore, based on the findings, h2b is not supported, because there is no significant interaction effect between external sustainability assurance and financial performance of the company in this case.

TABLE 4

Perceived relevance ESG indicators

Panel A: Means (Standard deviations)

Profitable Loss-making Row average

Assurance - present 6,46 4,52 5,40 (1,769) (1,957) (1,871) n = 24 n = 29 n = 53 Assurance - absent 6,33 4,32 5,30 (1,465) (1,842) (1,657) n = 24 n = 25 n = 49 Column average 6,40 4,43 5,36 (1,608) (1,889) (1,757) n = 48 n = 54 n = 102

Panel B: ANOVA results

MS F P

Assurance 0,658 0,208 0,649

Financial performance 99,087 31,327 0,000

Assurance * Financial performance 0,033 0,010 0,919

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4.3 Willingness to invest

In the final part of the results, I focus on the interaction effect between sustainability assurance and financial performance on the willingness to invest in the company. The results in table 5 shows that assurance on ESG indicators does not have a significant effect (F = 1,823; p = 0,180) on the willingness to invest in the WMW company. This is not in line with the results of prior research (Hodge, Subramaniam & Stewart, 2009; Cheng, Green & Ko, 2014; Pflugrath, Roebuck & Simnett, 2011; Coram, Monroe & Woodliff, 2009), which indicate that assurance on ESG information increases the willingness to invest in a company. In my study I focused on people without investment experience in stocks or shares (Prolific filter). This is contradictory to the prior researches, which were mainly focused on MSc students with an accounting background. This might be an explanation that there is no effect of assurance on the investment decisions of non-professional investors.

Table 5 (Panel B) and figure 7 show that the financial performance of the company has a positive and significant impact on the willingness to invest (F = 375,560; p < 0,000). In the literature review I have not deepen into this relationship, because people are more willing to invest in a profitable company compared to a loss-making company (Coram et al., 2009). However, the results provide evidence that the participants understand the difference between a loss-making and profitable company. Hence, the manipulation of financial performance was successful.

Finally, the results provide an answer on the research question: Does assurance of an independent auditor on a sustainability reports increases the non-professional investors’ willing to invest the extent and would it be greater when the financial performance is profitable compared to loss-making? To provide an answer on this question, I examine the interaction effect between sustainability assurance and financial performance of a company on the willingness to invest in share of WMW. Table 5 (Panel B), shows that the interaction effect between assurance and financial performance is not significant (F = 0,121; p = 0,728). Concluding, sustainability information does not increases the willingness to invest (F = 1,823; p = 0,180) and the extent would not be greater when the financial performance is profitable compared to loss-making (F = 0,121; p = 0,728).

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TABLE 5 Willingness to invest

Panel A: Means (Standard deviations)

Profitable Loss-making Row average

Assurance - present 6,75 2,79 4,60 (0,737) (1,449) (1,127) n = 24 n = 29 n = 53 Assurance - absent 6,54 2,44 4,29 (0,833) (0,917) (0,875) n = 24 n = 25 n = 49 Column average 6,65 2,63 4,54 (0,785) (1,233) (1,022) n = 48 n = 50 n =102

Panel B: ANOVA results

MS F P

Assurance 1,997 1,823 0,180

Financial performance 411,494 375,560 0,000

Assurance * Financial performance 0,133 0,121 0,728

Figure 7: Interaction between financial performance and assurance on willingness to invest

Loss-making Profitable W il li n g n es t o b u y s h ar e (H ig h er s co re = m o re w illin g n es s to in v es t)

Willingness to buy shares

Assurance - present Assurance - absent

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4.4 Mediation analysis dependent variables

In the final part of the empirical results, I examine the mediation effect of perceived credibility and perceived relevance on the investment decisions of non-professional investors. The Hayes’ SPSS PROCESS tool (2013) is used to examine the mediators of investment decisions, which is the same method as Cheng et al. (2014). The mediation effect is based on the procedures of Baron and Kenny (1986). First I examine the effect of assurance on the willingness to invest via perceived credibility and perceived relevance. Secondly, I examine the effect of financial performance on the willingness to invest via perceived credibility and perceived relevance.

The previous findings of this study show that assurance has no significant impact on the willingness to invest in the company (table 5, Panel B). The results of the mediation test are displayed in table 6 and figure 8. The findings of the mediation test are in line with the findings in table 5, which shows that the direct effect of assurance (0,063) is not significant (t = 0,176; p = 0,861). The results of the Hayes’ approach (2013) show by using 5.000 bootstrapping approach, that perceived relevance (indirect effect = 0,044; CI: -0,343 - 0,441) and perceived credibility (indirect effect = 0,029; CI: -0,256 – 0,326) do not significant influence the effect of assurance on the willingness to invest. Concluding, based on the results, there is no mediation effect of assurance via perceived relevance and perceived credibility on the willingness to invest

Figure 8: Direct and indirect effect of assurance on willingness to invest

0,090 0,492 *

0,063

0,065 0,441 *

* Significant at the 0.01 level (2-tailed)

Assurance Willingness to invest

Perceived credibility Perceived relevance

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The findings in table 5 (Panel B), show that financial performance has a significant impact on the willingness to invest in de company. The results of the Hayes’ approach (2013) confirm the prior findings about the effect of financial performance on the willingness to invest (table 7 and figure 9). The direct effect of financial performance is 3,530, which is significant (t = 15,006; p < 0,001). The results show that perceived credibility (indirect effect = 0,180; CI: -0,012-0,408) and perceived relevance (indirect effect = 0,306; CI: 0,064-0,609) mediates the effect of financial performance on willingness to invest. Concluding, based on the results, there is a mediation effect of financial performance via perceived relevance and perceived credibility on the willingness to invest (figure 9).

Figure 9: Direct and indirect effect of financial performance on willingness to invest

1,970 * 0,155 *

3,530 *

1,338 * 0,135

* Significant at the 0.01 level (2-tailed)

Concluding, the effect of financial performance on the willingness to invest is mediated by perceived relevance and perceived credibility of sustainability information. However, there is no mediation effect of assurance on willingness to invest via perceived credibility and perceived relevance of sustainability information. The results of the Hayes’ test are in line with the findings about the effect of assurance and financial performance on the willingness to invest. Hence, the additional mediation test provide evidence that perceived relevance and perceived credibility of ESG information mediates the effect of financial performance on the willingness to invest in a company.

Financial performance Willingness to invest

Perceived credibility Perceived relevance

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TABLE 6 - MEDIATION MODEL ASSURANCE

Panel A: Direct and indirect effect of assurance on willingness to invest

Direct effect Credibility Relevance Willingness

Coefficient SE p Coefficient SE p Coefficient SE p

Assurance 0,065 0,315 0,836 0,090 0,401 0,823 0,063 0,356 0,861

Credibility - - - 0,441 0,123 0,001

Relevance - - - 0,492 0,096 0,000

Indirect effect Credibility Relevance

Effect Lower CI Upper CI Effect Lower CI Upper CI

Assurance 0,029 -0,256 0,326 0,044 -0,343 0,441

TABLE 7 - MEDIATION MODEL FINANCIAL PERFORMANCE Panel A: Direct and indirect effect of financial performance on willingness to invest

Direct effect Credibility Relevance Willingness

Coefficient SE p Coefficient SE p Coefficient SE p

Fin. performance 1,338 0,286 0,000 1,970 0,350 0,000 3,530 0,235 0,000

Credibility - - - 0,135 0,071 0,059

Relevance - - - 0,155 0,058 0,008

Indirect effect Credibility Relevance

Effect Lower CI Upper CI Effect Lower CI Upper CI Fin. performance 0,180 -0,012 0,408 0,306 0,064 0,609

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5 Discussion and conclusion

In the final part of this research, I discuss the results of my experiment and compare these with prior researches about sustainability assurance and non-professional investors’ decisions, while answering the research question. Secondly, I describe the contribution of this study to the existing academic knowledge accumulation. Moreover, I explain the limitations of this research. Finally, I provide further research suggestions about sustainability assurance and the effect of it on investors’ decisions.

Contradictory to prior research (Hodge, Subramaniam & Stewart, 2009; Cheng, Green & Ko, 2014; Pflugrath, Roebuck & Simnett, 2011; Coram, Monroe & Woodliff, 2009), the results show that there is no effect of sustainability assurance on the non-professional investors’ decisions. The difference between the prior studies and this study are the participants which are used as a proxy for non-professional investors. The prior researches of Cheng et al. (2014) and Coram et al. (2009) used MBA students with an accounting background as participants of their research. In this study, the proxy for non-professional investors are people who never invested in stock or shares of a company before. Table 1 shows the characteristics of the participants, which indicate that only 10% of the participants had an economic study background, which differs compared to the study of Cheng et al. (2014). This study does not provide significant evidence that the effect of sustainability assurance on non-professional investors differs due to the education background of the participants. However, based on the results and comparison with prior research, non-professional investors’ education background might influences the effect of assurance on the non-professional investors’ decisions.

In this study, I investigated the literature of sustainability assurance and financial performance to examine the interaction effect between those variables on the non-professional investors’ decisions. The results show that there is only an interaction between sustainability assurance and financial performance on the perceived credibility of sustainability information. In other words, the effect of sustainability assurance on perceived credibility is higher when the financial performance is profitable compared to loss-making. This is in line with the study of Hutton et al. (2003) and the attribution theory which suggests that providing supporting information does not have an effect on the level of perceived credibility when the financial performance is loss-making. The findings show that there is no interaction effect between sustainability assurance and financial performance on the perceived relevance (table, 5, Panel B) and willingness to buy shares (table 6, Panel B).

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