Sustainability Assurance: Determinants of Perceived Value by Investors

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Sustainability Assurance: Determinants of

Perceived Value by Investors

Thesis Accountancy

Luuk Christiaan Berger Address: Van Speykstraat 40B

9726 BN, Groningen E-Mail: l.c.berger@student.rug.nl Telephone number: +31 6 25305848 Student number: S2755033 Date: June 20, 2019 Word count: 10,851

Supervisors: Prof. dr. D. A. de Waard & M. Looijenga, MSc. RA EMA Second assessor: dr. A. Bellisario

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Abstract

This study investigates whether independent assurance on sustainability disclosures increases the perceived firm value by investors. Using a sample of listed firms from the U.K., the Netherlands, South-Africa, Spain, Japan, and India, from 2013-2017, the results of a linear panel regression show that such assurance does increase the perceived firm value by investors. Furthermore, this study finds higher increases when the assurance is given by a Big 4 audit firm, compared to non-Big 4 firms. The increase in perceived value is higher when a reasonable level of assurance is given, compared to when a limited level is given. No difference in perceived value, however, is found between assurance given by accountants and sustainability consultants. This study, thereby, provides new insights into the value of assurance of sustainability disclosures. The results have important implications for practitioners. In the last section of this study, suggestions for further research are given.

Keywords: sustainability assurance, Big 4, accountants, sustainability consultants, audit firms, levels of assurance.

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Table of Contents

Abstract ... 2

1. Introduction ... 4

2. Literature and background ... 8

2.1 Theory ... 8 Legitimacy theory ... 8 Stakeholder theory ... 8 Signaling theory ... 9 Agency theory ... 10 2.2 Hypotheses development ... 11

Independent external assurance ... 11

Type of assurance provider ... 12

Big 4 versus non-Big 4 ... 13

Level of assurance ... 14

3. Research methodology ... 14

3.1 Sample ... 14

3.2 Dependent variable: Perceived firm value... 16

3.3 Independent, moderating and control variables ... 18

External assurance ... 18

Moderating variables ... 18

Type of assurance provider ... 19

Big 4 vs non-Big 4 ... 19 Level of assurance ... 19 Control variables ... 20 3.4 Statistical model ... 21 4 Results ... 23 4.1 Descriptive statistics ... 23 4.2 Correlation ... 24 4.3 Regression analysis ... 25 4.4 Additional analyses ... 27 Multicollinearity ... 27

Developments over years ... 28

5 Discussion and Conclusion ... 29

5.1 Findings ... 29 5.2 Implications ... 30 5.3 Further research ... 32 5.4 Limitations ... 32 References ... 34 Appendix ... 40

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1. Introduction

Since January 2017, the EU Non-Financial Reporting Directive (2014/95/EU) is effective for companies in the EU and requires large companies to disclose social, environmental and diversity information. The EU had several reasons for the adoption of the directive, like increasing confidence in companies by increasing transparency and providing investors with more information regarding sustainability issues, so that they can make better-informed decisions and can compare firms on their sustainability performance (EY, 2017). Besides the EU directive, legislation regarding sustainability reporting is increasing worldwide. This legislation is mostly imposed by national governments or stock exchanges. However, before many of these regulations were in place, the growth in sustainability reporting worldwide had started (Ballou, Casey, Grenier & Heitger, 2012; Cohen, Holder-Webb, Wood & Nath, 2012). A recent survey by KMPG (2017) reports that 78% of the 250 largest firms in the world (G250) included corporate responsibility (CR) information in their annual financial reports. The growth of sustainability reporting is, besides the expanding legislation, caused by the increasing belief of companies that they can capitalize and enhance overall creditability by disclosing additional non-financial information (Kolk, 2010). Another motivation is that firms want to be included in creditable indexes to signal a sustainable image (Wong & Millington, 2014).

Despite the growing number of sustainability reports that are published, there are, however, questions regarding creditability and reliability (Braam & Peeters, 2018) and transparency (Hopwood, 2009) of the information that is disclosed in these reports. De Villiers, Rinaldi and Unerman (2014, p.1,044) for example state in their paper: “The meaning of the

term sustainability is contested, and critics claim that the term "sustainability disclosure" itself has little to do with sustainability and is much more about an attempt by business to connect with the concept of sustainability in a symbolic way, whilst continuing with business as usual.”

Bagnoli and Watts (2017) found, additionally, that if investors are not able to directly observe the sustainability activities and performance of a company, the company has an incentive to disclose information, but has no incentive to report completely. Furthermore, Milne, Tregidga and Walton (2009) found that organizations have the potential to recast existing practices as sustainable in their reports. Consequently, sustainability disclosures can be interpreted as unverified management assumptions, which leads to creditability and reliability concerns (Ackers & Eccles, 2015).

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In an attempt to eliminate these creditability and reliability concerns, there is a growing number of companies seeking external assurance on their sustainability reports (Junior, Best & Kotter, 2014; KPMG, 2015; Braam & Peeters, 2018). This assurance, which is provided by an independent third party, is a manner to improve confidence of stakeholders in the published sustainability reports, which might increase the reputation of an assurance issuing company (Simnett, Vanstraelen & Chua, 2009; Pflugrath, Roebuck & Simnett, 2011; Reimsbach, Hahn & Gürtürk, 2018). External assurance on sustainability information aims to verify whether the reported information is a reasonable presentation of actual sustainability performance (Kaspereit & Lopatta, 2016) and to increase the creditability of disclosed sustainability documents to capital markets (Darnall, Seol & Sakris, 2009). The objective of this assurance is, thus, to increase creditability and eliminate the lack of confidence that stakeholders have in sustainability disclosures (Manetti & Becatti, 2009). Other reasons for companies to assure their sustainability disclosures are reduced risks of restatements, strengthened internal reporting and management systems, and improved stakeholder communication (GRI, 2013).

Stakeholders, however, remain skeptical, since objectives and level and scope of this assurance can vary significantly (Fuhrman, Ott, Looks & Guenther, 2017), there is a lack of assurance providers independence, (O’Dwyer & Owen, 2007) and the assurance can be provided by a diverse range of professionals like auditors, consultants and sustainability specialists (Cohen & Simnet, 2014). In addition, it is even more difficult to give appropriate assurance to companies that had no consulting advice on how to make their sustainability environment suitable for an audit (O’Dwyer, 2011). Research by Kells (2011) found that the strength of assurance may have been overestimated by its users. He further states that the expectations gap that exists in financial auditing also exists in the auditing of sustainability disclosures. Also, the professional standards that are used for this sustainability assurance often derive from the financial reporting context and are not entirely suited to express an opinion on all sustainability issues (Maroun, 2018). Due to these critics, this study investigates whether sustainability assurance adds value for the assurance issuing company.

When exploring the value of sustainability assurance, it is of interest who provided the assurance, since assurers that originate in the audit profession are inherently more conservative and comply to high professional assurance standards and internal quality controls. Sustainability consultants have a less conservative background and consequently perform different assurance activities (Ackers & Eccles, 2015). It is thus expected that these differences lead to different perceived value.

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In addition, this study will also investigate whether the perceived value differs between assurance provided by Big 4 and non-Big 4 audit firms, since Big 4 audit firms tend to produce more accurate reports due to their economic independence and greater reputation risks (Pflugrath, Roebuck & Simnett, 2011; Cuadrado-Ballesteros, Martínez-Ferrero & García-Sánchez, 2017). The influence of this difference between the provider of the assurance, therefore, will be investigated in this study.

Another relevant distinction that can be made here, is the one between reasonable and limited levels of assurance. A reasonable level of assurance means that the assuror has performed enough procedures to positively state that the disclosed sustainability reports accurately reflect the company’s environmental performance (Jones, Comfort & Hillier, 2015). Reasonable level assurance can only be achieved when the assurance risk is reduced to an acceptably low level (Fuhrman et al., 2017). For a limited level of assurance, however, the assuror only has performed procedures to state in a negative manner, that nothing has come to his attention which causes him to believe that the sustainability disclosures do not accurately reflect the company’s environmental performance (Jones, Comfort & Hillier, 2015). Due to this limited scope, it is hard for users to assess which parts of the sustainability reports are assured, and which parts are not (Ackers & Eccles, 2015). It is, thus, expected that these different levels of assurance have different influences on firm value. The aforementioned relevant issues lead to the research question of this study:

Does independent, third-party assurance on sustainability disclosures increase the perceived firm value by investors, and is this increase affected by the level and provider of this assurance?

The amount of companies that seek external assurance over their sustainability information has grown over time, and 67% of the CR issuing G250 firms in 2017 had assured this information by an independent third party (KPMG, 2017). Although the increased publishing of sustainability information is (at least) partly caused by the increasing legal liabilities, this cannot be said for external assurance over such reports, since this assurance is not mandatory. This indicates that firms are increasingly convinced that investors value the assurance of sustainability information, but it is questionable whether this is justified when

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taking into account the differences in objectives and level and scope (Fuhrman et al., 2017), and the different range of professions that provide the assurance (Cohen & Simnett, 2014).

For companies, it is highly relevant to know whether assurance does, indeed, add value because it will determine their willingness to seek assurance. The results of this study indicate whether the assurance of sustainability information increases the market values that investors assign to firms. If investors tend to place higher values on companies that publish sustainability reports including assurance, this will be an incentive for companies to seek assurance. This study is also relevant for firms that provide sustainability assurance, since these firms have to decide whether to invest in the development of sustainability assurance or not. This study elaborates on which assurance providers add the most value to firms, so firms that add no, or little, value, are implied to improve their services. For investors, this study adds value by providing knowledge about firms that assure their sustainability information. For investors, this is of importance since firms that have less reliable sustainability figures are less inclined to seek independent assurance for this information, while firms with more reliable figures are more inclined to seek assurance. This gives investors some information about the expected reliability of a company's sustainability disclosures.

This study contributes to the sustainability assurance literature by thoroughly investigating determinants of the value of sustainability assurance. This study is using a large dataset, containing almost 3,000 firm-years. Furthermore, the selected years in the dataset are 2013-2017, and, thus, contain very recent data. The selected dataset is a combination of sustainability assurance related data and financial data. This combination provides information regarding firms with assured sustainability disclosures and their firm value, and compares this to firms without this assurance. Also, this study adds to prior literature by expanding knowledge about the value relevance of sustainability assurance. This is done by taking the level and provider of the assurance into account, and linking this to the perceived value of the assurance, while concurrent variables are controlled for extensively.

The remainder of this study is organized to unfold the research question. First, the literature and background of this research will be elaborated in chapter 2. After that, the research methodology and the sample will be addressed in chapter 3. Thereafter, the results are described in chapter 4, followed by the conclusion and discussion in chapter 5.

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2. Literature and background

In this section, four theories that are frequently used to explain the rationale for sustainability assurance, are elaborated. These theories will be explained briefly in the theory section and will be helpful in explaining the rationale for sustainability assurance. After the theory section, the hypotheses will be developed and elaborated in the hypotheses development section.

2.1 Theory

Legitimacy theory

A theory that is often used in the research field of sustainability assurance, is legitimacy theory. This theory argues that organizations seek to achieve congruence between social values that are associated with their activities, and norms that society has labeled as acceptable (Dowling & Pfeffer, 1975). If these two values are congruent, organizational legitimacy is established, but when these values are not, legal, economic and social threats arise (Dowling & Pfeffer, 1975). These threats arise because legitimacy theory is based on the existence of social contracts between organizations and their social environments (Patten, 1992). When organizations do not operate conform with the norms of these contracts, there is no corporate legitimacy, which compromises their survival (Bepari & Mollik, 2016). Stated more robustly; society will not allow an organization to continue its business when that organization does not comply with the norms of society (An, Davey & Eggleton, 2011). It is, thus, of interest for organizations to increase and maintain this legitimacy.

A specific way in which organizations can achieve corporate legitimacy is the disclosure of sustainability reports. By disclosing these sustainability reports, organizations legitimize their social activities and send a positive signal to society (Rossi & Tarquino, 2017). Since sustainability disclosures, however, are not always perceived as credible and reliable (Braam & Peeters, 2018), organizations can seek external assurance over their disclosers to increase reliability and creditability. This increased reliability and creditability will ultimately lead to higher levels of corporate legitimacy (O’Dwyer, Owen & Unerman, 2011). Accordingly, legitimacy theory states that the rationale for obtaining sustainability assurance can be found in the need for organizations to meet their social contracts with society.

Stakeholder theory

Another theory that is frequently used in this field, is the stakeholder theory, which states that firms need to satisfy the needs of their key stakeholders (Casey & Grenier, 2015). This

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theory indicates that organizations should remove their focus from just to their owners, to the broader society in which they operate (Freeman, 2010). This theory raises the question which of the stakeholder groups deserve attention from management, and probably more important, which groups do not (Mitchell, Agle & Wood, 1997).

Stakeholder theory further states that governments and businesses have the collective responsibility to prevent corporate activities from compromising social wellbeing (Bepari & Mollik, 2016). Additionally, stakeholder theory often relates to accountability, indicating that organizations have the responsibility to disclose information regarding its activities and performance, to assist stakeholders in their decision-making (An, Davey & Eggleton, 2011). It, thus, can be said that organizations are held accountable for their actions by society. Sustainability reporting can be seen as discharging accountability to society, in order to ensure the support of stakeholder groups that are essential to the survival of an organization (Casey & Grenier, 2015). Here, the assurance of this reporting can be explained by enhancing creditability of disclosures to the external stakeholders (Beelde & Tuybens, 2015) and meeting demands of key stakeholders (Casey & Grenier, 2015).

Signaling theory

Signaling theory is a theory that derives from the labor market, but is generally applicable in all markets that contain information asymmetry (Morris, 1987). This theory describes behavior between two parties, who have access to different information sources (Connely, Certo, Ireland & Reutzel, 2011). It states that selling parties inherently have more information than buying parties, which leads to a lower buyer’ valuation of all provided services by sellers, to compensate for the lack of information (Morris, 1987). In this situation, sellers with superior quality, thus, lose some potential, since buyers lack the information to value their superior quality. For these superior quality sellers, there is an incentive to communicate their superior quality to the buyers. This communication is called signaling and can take several forms. This signaling is based on the assumption that the signal results in favorable outcomes for the sender. According to signaling theory, companies with superior quality, are thus inclined to signal their superiority to the market (An, Davey & Eggleton, 2011).

Companies can disclose sustainability information, but as was mentioned in the introduction, the users of these disclosures have less information regarding the reliability and creditability of these disclosures, which will lead, inherently, to a lower valuation (Güturk, 2017). This difference in creditability between a party that discloses sustainability reports, and a party that is using these reports, is called a creditability gap. To close this creditability gap,

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companies can seek external assurance for their sustainability disclosures, and underline the creditability and reliability of the disclosed information (Güturk, 2017). Since external assurance includes an independent third party, the reliability will increase and the information asymmetry will decrease. More specifically focused on sustainability disclosures, this means that firms with superior sustainability performance can assure their sustainability disclosures, in order to signal their superior performance to the market. This theory, thus, states that the rationale for seeking external assurance of sustainability disclosures derives from the need for companies to signal their superior performance.

Agency theory

This study will draw on agency theory, which primarily focuses on the principal-agent relationship that exists in the separation of ownership and control (Fama & Jensen, 1983). Agency theory states that agents will not always act in the best interest of their principals, because all individuals pursue their own interests (Jensen & Meckling, 1976). The ability of the agents to pursue their own interests, derives from the fact that agents have access to more information, which causes information asymmetry, and makes it hard for the principals to monitor their agents (Jensen & Meckling, 1976). In the case of sustainability, the owners of a firm are the principals, and they might value sustainability and want to integrate this into the company strategy by reporting on this subject. The principals are, however, not directly involved in strategy execution on the operational level, since these operations are delegated to management, which are called agents. According to agency theory, the objectives of the agents are not always aligned with those of the principals (Jensen & Meckling, 1976). This indicates that there is a possibility that management will not execute the sustainable strategy that the owners desire. More specific, agents might neglect the sustainability subject and shirk on the reporting on sustainability.

Sustainability reports can be outlined by management. Since the owners are not able to directly observe the actual sustainability performance, management has a limited incentive to disclose information completely (Bagnoli & Watts, 2017). The principals, thus, have an incentive to monitor their agents. The costs of this monitoring are called agency costs (Jensen & Meckling, 1976). Due to its independent nature, sustainability assurance improves the monitoring process, by reducing information asymmetry (Dhaliwal, Li, Tsang & Yang, 2011) and agency costs (Ruhnke & Gabriel, 2013). The independent nature of this assurance ensures that what is stated in the sustainability reports by management, is free from misstatements in all material respects. As agency costs increase, the demand for assurance will increase as well

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(Chow, 1982). Agency theory, thus, explains the demand for external assurance of sustainability disclosures, by the need of the owners of a company to monitor management. During this study, agency theory will be the leading theory, as it provides the most plausible rationale for the demand of sustainability assurance.

2.2 Hypotheses development

In this section, the terms of the research question will be defined and further elaborated. Also, hypotheses will be developed regarding the different variables that influence firm value, as stated in the research question.

Independent external assurance

Bepari and Mollik (2016) state that sustainability assurance adds little value due to its severe scope, while Shen, Wu & Chand (2017) found that sustainability assurance has a positive effect on investment decisions of non-professional investors in China. Cheng, Green and Ko (2015) found that this assurance increases investors’ willingness to invest. This implies that there is no clear agreement on the added value of sustainability assurance, and the value relevance to stakeholders, thus, remains questionable.

According to Purswani, and Anuradha (2017), information is value relevant if it has the potential to influence decisions of investors and thereby have an effect on the firm’s market value. Beisland (2009) states that accounting information is relevant for equity investors, since book values of equity are generally associated with economic measures of value. In the case of sustainability assurance, such an association is harder to establish, since the linkage between sustainability assurance and economic measures of firm value is less direct than the linkage between book value and economic value. However, there are several studies that examined the value of sustainability assurance and different results were found. Casey and Grenier (2015), for example, found that for US firms that have their sustainability reports assured, the cost of equity capital and analyst forecast errors are lower than for firms who do not have such assurance, which indicates that investors do value assurance. Hodge, Subramaniam and Stewart (2009) found that sustainability reports that contain assurance, engender greater creditability than reports without assurance. Kaspereit and Lopatta (2016) found a positive association between corporate sustainability and market value, but did not found robust empirical evidence of such a positive relationship between external assurance and market value. More strongly stated, they found that external assurance does not increase the value relevance of sustainability

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disclosures. Due to these insignificant findings, it thus remains questionable whether external assurance affects market value.

Based on the findings of this prior research, it is expected that independent external assurance has a positive effect on the market value of the disclosing firm, which leads to the first hypothesis:

H1: Independent, external assurance towards sustainability disclosures increases the value of the disclosing firm.

Type of assurance provider

When evaluating differences between auditors and sustainability consultants in providing sustainability assurance, the most relevant difference contains the background of the professions. The auditing profession relies heavily on International Standard on Assurance Engagements (ISAE) 3000. This standard was issued by the International Audit and Assurance Standards Board (IAASB) and is the accounting profession’s preferred standard (Farooq & De Villiers, 2019). Consequently, practitioners from the auditing profession express an opinion based on the objectives and processes defined in this standard (Jones & Solomon, 2010). Sustainability consultants, typically, do not follow the ISAE 3000 approach, but follow the AccountAbility Assurance Standard (AA1000AS) and consequently can comment on all issues they found to be relevant, and can adopt a different approach of providing assurance (Wong & Millington, 2014). The most important difference between these two standards is that the AA1000AS approach requires to provide assurance over the entire sustainability report, while the ISAE 3000 can leave specified areas out of scope (Farooq & de Villiers, 2019). This AA1000AS approach is, consequently, more expensive and riskier for reporters (Farooq & de Villiers, 2019). Ackers and Eccles (2015) state that sustainability consultants, consequently, provide higher levels of assurance. These differences in standards are expected to result in different perceived value of assurance for investors.

Prior studies have studied the influence of these different standards on several value relevance related variables. Casey and Grenier (2015) found a decrease in cost of equity capital when sustainability assurance is given, and also found that this decrease is larger when sustainability assurance is provided by an audit firm compared to a non-audit firm. Further research on perceived value of sustainability assurance by differentiating between assurance provided by audit and non-audit firms, has led to ambivalent findings (Martínez-Ferrero, García-Sánchez & Ruiz-Barbadillo, 2018). Pflugrath, Roebuck and Simnett (2011) and Casey

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and Grenier (2015) did find higher levels of confidence for assurance provided by auditors. Hasan, Roebuck and Simnett (2003) and Shen, Wu and Chand (2017), however, found no difference in levels of confidence. Rossi and Tarquinio (2017) found differences in assurance reports between auditors and non-auditors, but no clear distinction in quality was found. Moroney, Windsor and Ting Aw (2011) found that in Australia, assurance by sustainability consultants receive higher confidence. Similar results were found by Wong and Millington (2014) for UK firms, where stakeholders preferred sustainability specialists over auditors. De Beelde and Tuybens (2015) found that the perceived quality of assurance by auditors and consultants is converging. Since these findings are ambivalent, this research will study the effect of different types of practitioners on the perceived value of sustainability assurance, leading to the second hypothesis:

H2: The increase in firm value by the assurance of an independent party is moderated by the type of assurance provider.

Big 4 versus non-Big 4

The market for assuring financial and non-financial reporting is predominantly owned by four large audit firms, namely Deloitte, EY, KPMG, and PWC. These audit firms are called the Big 4. Research by Fernadez-Feijoo, Romero and Ruiz (2018) found that sustainability reports that are assured by these Big 4 firms, obtain higher creditability and overcome stakeholder pressure more exhaustively, compared to assurance by non-Big 4 firms. In addition, Hodge, Subramaniam and Stewart (2009) found that users perceived sustainability disclosures that are assured, at a reasonable level, by a Big 4 firm as the most credible. However, Rossi and Targquino (2017) found a negative relation between sustainability assurance by a Big 4 audit firm and the Assurance Statement Disclosure Index (ASDI), indicating that the completeness of assured sustainability reports by Big 4 audit firms is relatively low. Due to these inconsistent results, this study addresses the influence of hiring a Big 4 audit firm for performing sustainability assurance activities, which leads to the third hypothesis:

H3: The increase in firm value by the assurance of an independent party is moderated by the choice for a Big 4 audit firm.

14 Level of assurance

In addition to their findings regarding Big 4 audit firms, Cuadrado-Ballesteros, Martínez-Ferrero and García-Sánchez (2017) also found that the perceived value of assurance depends on the level of assurance, but their results did, however, not appear to be statistically significant. As mentioned, Hodge, Subramaniam and Stewart (2009) studied the influence of the level of assurance on the perceived value of assurance. Their findings were only significant if the assurance was provided by a Big4 audit firm. This prior research indicates a positive relationship between a reasonable level of assurance and the market value relative to limited level assurance, which results in the last hypothesis:

H4: The increase in firm value by the assurance of an independent party is higher when a reasonable level of assurance is provided, relative to a limited level of assurance.

3. Research methodology

This section describes the data collection methods, validity issues, and statistical models. First, the sample that is used for this study is clarified, and the data collection process is described. After this, elaborations of the dependent, independent, moderating, and control variables are presented. The last part of this section describes the statistical model that will be used to perform the analysis.

3.1 Sample

The initial sample of this study included all listed U.K., Dutch, South-African, Spain, Japanese, and Indian firms that were adopted in the Global Reporting Initiative (GRI) database from 2013-2017. The GRI database contained data regarding sustainability disclosures, including specific information about external assurance on these disclosers. The data specified whether firms sought external assurance for their sustainability disclosures or not, who gave the assurance, and the scope and level of the assurance. In addition, this database contained information regarding the industry types that firms operated in.

This GRI sample contained 6,764 firm-years for the selected countries and years. This sample, thus, contained firms with, and firms without sustainability assurance. Out of these firm-years, all non-listed firms were deleted, because these firms could not be used since they had no stock prices available, which are used to determine the perceived firm value. After the

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deletion of these non-listed firms, there were 132 firm-years that had no data regarding the level of assurance. In addition, 9 firm-years had missing data regarding the type of assurance provider. These firm-years were deleted, which led to a sample of 4,887 firm-years. In table 1, this selection process is displayed.

Regarding the selected countries, there were several explanations for the specific selection. First, according to the KPMG survey (2017), Spain, South-Africa, Japan, and the Netherlands disclosed the most integrated reports per 100 largest companies of that country. Second, the survey (2017) reported in addition, that out of the 100 largest firms per country (N100), UK, Japanese and Indian firms reported the most on sustainability. For these countries, 99% of the N100 disclosed sustainability reports (KPMG, 2017). This indicates that these countries have a higher maturity regarding disclosing sustainability reports. This will improve the reliability of the results of this study and will make the results more relevant for firms and markets that intend to engage in sustainability reporting. For South-Africa, there was an additional reason for selection in the sample, namely, the mandatory sustainability assurance for Listed firms on the Johannesburg Stock Exchange (JSE) through applying the King III principles (Ackers & Eccles, 2015).

Although Fernandez-Feijoo, Romero and and Ruiz (2018) included the US in their study, because of their economic importance in the assurance market, this study did not include the US. The rationale for this decision lies in the different structure of the capital market in the US compared to the rest of the world. Due to this difference in structure, the results might be blurred since the capital markets of the US is affected by different variables. This can cause problems in establishing relationships between assurance-related variables and perceived firm values.

After selecting the assurance-related data, financial data about the selected firms were extracted from the Compustat Global database. This database was accessed through Wharton Research Data Services (WRDS). The financial data that were selected contained information regarding the book value of equity (BVE), net income (NI), total assets (TA), total sales (TS), total income before extraordinary items, total debt (TD), number of outstanding shares, and stock price per share.

This information from the Compustat database was complemented with information from the GRI database. The GRI database, however, had no tickers available to identify firms. Due to these missing tickers, the combination of the two databases caused some problems in linking the GRI firms to the Compustat firms. This linking problem resulted in a loss of 41 firm-years.

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For 1,898 firm-years, there were no stock prices available, which led to another reduction in available data. This led to the final sample of 2,948 firm-years. Specifications regarding the selection of the final sample are displayed in table 1. This final sample, thus, included both sustainability and financial data.

Table 1. Sample selection

Initial sample GRI (firm years) for selected firms and years 6,764

- Non-listed firms ( - ) 1,734

- Missing sustainability assurance-related data ( - ) 132

- Missing type of assurance provider ( - ) 9

Final sample GRI 4,887

- Missing stock price ( - ) 1,898

- No match with Compustat data ( - ) 41

Final sample combined databases 2,948

The years 2013-2017 were selected since these were the most recent years for which sufficient sustainability and financial information was available. For 2018, there were insufficient reports available in the database, since not all firms had their reports ready and submitted. In addition, the selection of 5 years made it possible to make inferences about trends in the practice of assurance of sustainability disclosures. Since the practice of sustainability assurance is relatively immature, this study will not include years before 2013, since this might blur the results. More specifically, this immaturity means that the practice of sustainability assurance was not developed well enough to make inferences about the influence of this assurance. For each selected year, the number of firms that disclosed sustainability reports differed. The available number of firm-years per country are summarized in table 2.

Table 2. Available firm-years per country

India 298

Japan 1,212

The Netherlands 122

South-Africa 691

Spain 150

The United Kingdom 475

Final sample (firm-years) 2,948

3.2 Dependent variable: Perceived firm value

The dependent variable of this study is the perceived firm value by investors. For measuring this variable, the stock prices per share were taken. These stock prices represented

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the values that investors assigned to the firms of interest. These values were, however, not solely caused by sustainability disclosures and its assurance, since financial information explains the largest proportion of the stock prices. This made it more complex to see the relationship between sustainability assurance and its assurance, and firm value.

Moreover, a growing number of firms are disclosing integrated reports (KPMG, 2017). These integrated reports combine financial and sustainability information into one report. These integrated reports are an example of difficulty in establishing the link between sustainability disclosures and firm value, since changes in firm value could be due to financial disclosures, sustainability disclosures, or both. This difficulty led to validity concerns since it was be hard to establish whether changes in firm value are caused by the disclosure of sustainability assurance. To take account for this validity concerns, this study made use of a specified model, that tries to capture the linkage between sustainability assurance disclosure and firm value. Further limitations regarding this validity concerns are stated in the discussion section. The model is further elaborated in the statistical model subsection, however, the part relating to the dependent variable is described here.

The model used, is extracted from a study by Ohlson (1995). Ohlson studied the relationship between a firm's market value and contemporaneous and future earnings, book values, and dividends. The model of Ohlson (1995) conceptualizes how market values are related to, and influenced by, accounting and other information, such as sustainability disclosures. This model was used by Peters and Romi (2015) and Fazzini and Dal Maso (2016) to provide evidence on the value-relevance of sustainability assurance. This model gives insight into the value relevance of sustainability assurance by disclosing how much of the stock price can be explained by the variables in the model. Peters and Romi (2015) modified the model of Ohlson (1995) into a model that captures the influence of sustainability assurance related factors on perceived firm value. After the modification of Peters and Romi (2015), the model states the following:

Pit = β0 + β1BVEit + β2NIit + β3(Assurance/Governance Type)it + (1) β4INDUSTRY + β5NYEAR + ε,

In this model, Pit stands for the stock price of a firm i share. Peters and Romi (2015) took these stock prices for dates three months after the ending of the fiscal year in which the sustainability reports were disclosed. However, since firms disclosed their sustainability reports on different moments in time, the influence on firm value was expected to occur in different

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moments as well. It is because of this reason, that stock prices of the end of the month in which sustainability reports were disclosed, were used. These disclosing dates were extracted from the GRI database, while the stock prices were extracted from the Compustat Global database.

β1BVEit represents the equity per share. This was calculated by dividing the book value of

equity of firm i, at the end of the fiscal year in, by the number of outstanding shares. β2NIit was the net income of the fiscal year, per share. This was calculated by dividing the net income of firm i by the number of outstanding shares. β3(Assurance/Governance Type)it represents multiple sustainability assurance related variables. These variables contain information regarding whether, or not, firm i had their sustainability reports assured, whether this assurance was provided by an auditor or consultant, a big4 or non-big 4 auditor, and wat the level of the assurance was. The Governance Type part of the model is dropped, since this was not relevant for this study, as this study tries to capture the influence of sustainability assurance, and not that of differences in governance structures.

β4INDUSTRY and β5NYEAR are control variables in this model, since industry type and

year explain a part of the value of sustainability assurance, and thus should be taken into account in the model.

This model (1), thus, performs a regression of stock price on the book value of equity, net income, and control variables, to determine whether these variables can explain variance in stock prices. Additionally, sustainability assurance variables are added to explain this variance in stock prices to a further extent. This is done by examining differences in stock price variation between firms with, and without, sustainability assurance.

3.3 Independent, moderating and control variables

External assurance

The independent variable distinguishes between firms that have sought external assurance over their sustainability reports, and firms who have not. This variable was measured using a proxy, taking value 1 if sustainability disclosures were assured by an external party, and value 0 if they were not. For assurance, both assurance by auditors and consultants are included. This means that reports with both ISAE 3000 and AA 1000 assurance are valued 1 in this variable.

Moderating variables

The variables that are elaborated in this section were expected to influence the relationship between the dependent and independent variable. For the moderating variables, only firms that had external assurance over their sustainability reports were taken into account,

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since firms that did not assure their sustainability disclosures were not relevant here. More practical, only the firms that received a value 1 in the proxy for the independent variable, were taken into account for the moderating variables.

Type of assurance provider

For providing assurance on sustainability reports, a distinction can be made regarding the provider of the assurance. For this study, this distinction is made between assurance provided by auditors and assurance provided by sustainability consultants. A proxy is used to measure this variable, where a value 1 is assigned when the assurance is provided by auditors, and a value 0 when the assurance is provided by sustainability consultants.

Big 4 vs non-Big 4

A further distinction regarding the practitioner that gives assurance can be made, by differentiating between auditors that are affiliated to Big 4 audit firms and auditors who are not. Big 4 audit firms are Deloitte, EY, KPMG, and PwC. A proxy was used taking value 1 if the auditor who provided the sustainability assurance was working for a Big 4 audit firm and taking value 0 if the auditor was not. For this moderating variable, thus, only firms with sustainability assurance that was provided by auditors were taking into account. This reduced the sample for this moderating variable, however, sufficient data were available.

Level of assurance

There are two main levels of assurance that can be provided regarding the assurance of sustainability information. The first level is the reasonable level, where a high, but not absolute, level of assurance is given. The second level is the limited level, where the level of assurance is lower than the reasonable level, leading to a moderate level of assurance. There is, however, a third level of assurance that occurs in practice. This is a hybrid form, that combines reasonable and limited assurance. This hybrid form gives reasonable assurance for specified sections while giving limited assurance for other sections. In the GRI database, these hybrid forms are stated as “combination”. This study allocates this combination to the limited level of assurance since the combination is not a solely, reasonable level. Although it is not a solely limited level as well, the allocation to this level was found to be most appropriate.

It appears to be difficult for sustainability assurance providers to provide high levels of assurance (Martinov-Bennie & Hecimovic, 2011), which resulted in fewer firms in the sample with reasonable assurance of sustainability disclosures. Despite the low number of reasonably assured sustainability reports, this study was able to investigate the influence of the different

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levels of assurance. For this study, a proxy was used, taking value 1 if reasonable assurance, and value 0 if limited assurance or a hybrid level was provided.

Control variables

Besides the independent and moderating variables that were already mentioned in this section, there were more variables that had an impact on perceived firm value. These additional variables were controlled for in the statistical model since their influence could not be ignored. Variables that were controlled for are year, firm size, industry, country, profitability, and leverage. In the statistical model in the next section, these control variables were added in the model.

Years were controlled for since overall economic and environmental circumstances differ each year, leading to different results per year. For each year, a dummy variable is added, which takes value 1 if the year of the sustainability disclosure equals the year of the dummy, and otherwise takes value 0. In total, there are 5 dummy variables for year. For firm size, the natural logarithm of the total sales is included (Peters & Romi, 2015). The total sales are winsorized to eliminate disproportionate effects on the relationship. This winsorizing is applied by adjusting outliers that differed more than two times the standard deviation into values that differ maximal two times the standard deviation. Profitability and leverage are also taken into account. Firm-specific financial profitability (ROA) is measured as total income before extraordinary items, divided by total assets at the beginning of the year (Peters & Romi, 2015). Leverage (LEV) is measured as the ratio of total debt to total assets.

This study also controlled for industry type, since different industries face different political and social pressures related to sustainability reporting. Firms that engage their main activities in environmentally sensitive industries (ESI’s) endure greater pressures regarding sustainability issues (Peters & Romi, 2015). Following Peters and Romi (2015), ESI firms are defined based on Cho and Patten (2007) and contain Chemicals (including Oil & Gas), Metal, Mining, Paper, and Utilities. A dummy variable, taking value 1 if a firm is active in an ESI, and value 0 if the firm is active in another industry, is implemented to take this industry variable into account.

Regarding the institutional context, Cuadrado-Ballestros, et al. (2017) noted that there are two major legal traditions: common law and civil law, where the former tends to be more shareholder-oriented, and the latter to be more stakeholder-oriented. This difference in orientation is expected to influence choices regarding sustainability assurance and

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consequently, this variable is taken into account as a control variable. Common law countries from the sample of this study are India and the UK. Civil law countries are Japan, the Netherlands, South-Africa, and Spain. For this control variable, a dummy variable is added, where firms originating in common law countries receive value 1, and firms originating in civil law countries receive value 0.

3.4 Statistical model

For this study, the model of Ohlson (1995) was helpful, since it determines the influence of certain information on firm value. Peters and Romi (2015) found this model to be useful in the examination of the impact of sustainability assurance on firm value. They used the model of Ohlson (1995) to examine the effects of different choices regarding this sustainability assurance on firm value. By their modification of the model of Ohlson (1995), they created the possibility to investigate whether sustainability assurance increases the value relevance of sustainability disclosures. Based on their model, model (2) was established to capture the influence of sustainability assurance on firm value. This model incorporates the aforementioned variables, which are concisely defined in table 3.

Pit = β0 + β1 (BVEit)+ β2 (NIit)+ β3 (Assurance) + β4 (Prov_Type)+ β5 (Big4)+ (2) β6 (Ass_Level) + β7-11 (YEAR)+β12 (Firm_Size) + β13 (ESI) +β14 (Inst_Cont) + β15 (ROA) +β16 (LEV) + Ɛit

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Table 3. Description of variables

Variable Label Proxy

Dependent variable

Firm Value Pit Stock price per share at end of the month in

which sustainability report was disclosed.

Independent variables

Book value of Equity β1 (BVEit) Book value of equity at year-end divided

by number of outstanding shares.

Net Income β2 (NIit) Net income of fiscal year divided by

number of outstanding shares.

Sustainability assurance β3 (Assurance) Dummy variable where firms with

assurance received value 1, and firms without assurance received a 0.

Moderating variables

Type of assurance β4 (Prov_Type) Dummy variable where firms with

assurance provided by an auditor received value 1, and firms with another type of assuror received value 0.

Big4 vs non-Big 4 β5 (Big4) Dummy variable where firms with

auditor assurance provided by a Big4 audit firm

received value 1, and firms with assurance provided by non-Big4 audit firms received value 0.

Level of β6 (Ass_Level) Dummy variable where firms with a

Assurance reasonable level of assurance received

value 1, and firms with a limited level of assurance received value 0.

Control variables

Year β7-11 (YEAR) Dummy variable for each year.

Firm size β12 (Firm_Size) Natural logarithm total sales (winsorized)

Industry β13 (ESI) Dummy variable where firms in ESI

receive value 1, and firms in other industries receive value 0.

Institutional context β14 (Inst_Cont) Dummy variable where common law firms

receive value 1, while civil law firms receive value 0.

Profitability β15 (ROA) Net income of fiscal year divided by total

assets at the end of the year.

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4 Results

In this section, the results of the statistical analyses are described. First, descriptive statistics are mentioned. After that, a correlation matrix is displayed and multicollinearity issues are elaborated. The third part of this section contains the regression analysis. Additional analyses are described in the last part.

4.1 Descriptive statistics

The descriptive statistics of the variables that are used in the analyses of this study are displayed in table 4. These descriptive statistics display that the mean stock value per share of the companies in the sample is almost 20 EUR (M = 19.9593) and that these stock values range between, approximately, 1.5 EUR (Min = 1.491) and 149.6 EUR (Max = 149.625).

Out of all firm-years in the sample, 25 percent (M = 0.25) had independent assurance on their sustainability reports. This percentage is substantively lower than the percentages reported by KMPG (2017), who found that 67% of the G250 had assurance on their sustainability disclosures in 2017. This difference in percentages is probably caused by the fact that this study does not only take the 250 largest firms per country into account, but also smaller firms. Out of the firm-years with assurance, three quarters (M = 0.75) had this assurance carried out by an accountant. The firm-years with assurance by accountants were dominated by assurance provided by accountants of Big 4 audit firms (M = 0.72). Regarding the levels of assurance, a minority (M = 0.09) contained a reasonable level of assurance.

Table 4. Descriptive statistics

M SD Min Max N Pit 19.9593 23.5713 1.491 149.625 2948 BVE 7.2453 12.1871 - 0.8977 80.8612 2948 NI .5208 1.1102 - 8.6225 12.9587 2948 Assurance .250 .433 0 1 2948 Type .750 .432 0 1 735 Big4 .720 .450 0 1 552 Ass. level .090 .288 0 1 735 Firm size 19.7935 2.795 9.5475 23.2428 2948 ESI’s .190 .392 0 1 2948 Inst. Cont. .260 .440 0 1 2948 ROA .0435 .0839 - 2.8048 .4275 2948 Leverage .1522 .1493 0 1.4852 2948

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Regarding the years that were used, there were differences in available data. For 2016, the most data were available (N = 640), while for 2017 the least data were available (N = 481). This low number of available firms is, presumably, caused by the fact that firms had not yet submitted their reports to the GRI database, since this is on a voluntary basis and therefore might lack priority. This means that the results for 2017 should be interpreted with extra care, since the results might not be covering the same sample of firms as the sample for earlier years. For almost 20 percent (M = 0.19) of the total firm-years, the industry was flagged as environmentally sensitive (ESI).

4.2 Correlation

As a first step in determining relationships between the different variables in this study, a correlation analysis was carried out. The results of this analysis are displayed in table 5. The results show that there are significant correlations between ‘firm value’ and all control variables, except ‘ESI’s’ (r = -0.01, p = 0.579). Additionally, there appear to be very high and significant intercorrelations between the assurance-related variables (‘Assurance’, ‘Type’, ‘Big4’, and ‘Level’). These high correlations indicate problems of multicollinearity. These high correlations, however, are due to the fact that the values of the moderating variables ‘Type’, ‘Big 4’, and ‘Level’ are dummies, and can only be 1 if the independent variable (‘Assurance’) is 1. These found high correlations were, thus, expected and marked as non-problematic for the regression analysis.

Table 5. Correlation table

** and * coefficients are statistically significant at 1, and 5 percent respectively, based on two-sided testing.

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In addition, there is a high intercorrelation (r = 0.765, p <0.01) between ‘NI’ and ‘BVE’. This correlation was expected since net income and book value of equity are related due to their economic relationship. In the additional analyses of this study, a robustness test is performed to take this issue of multicollinearity further into account and to assure that this issue does not influence the findings of this study.

An independent samples t test was performed to compare the choice for sustainability assurance between firms operating in an environmentally sensitive industry (ESI) and firms not operating in such an industry (table 6). The test was statistically significant (p <0.01), with firms not operating in an ESI (M = 0.22, SD = 0.411), having, on average, 0.177 lower scores on assurance, relatively to firms operating in an ESI (M = 0.37, SD = 0.489).

Table 6. Independent samples t test for ESI

ESI N M D M-difference P

0 2,388 .22 .411 -.177 .000

1 560 .39 .489

Another independent samples t test was performed to compare the choice for assurance between firms originating in common law countries and firms originating in civil law countries. The results of this test (table 7) display that firms originating in a common law country (M = 0.30, SD = 0.460) score significantly 0.072 (p <0.01) higher on the assurance variable than firms originating in civil law countries (M = 0.23, SD = 0.421).

Table 7. Independent samples t test for institutional context

Count. N M D M-difference P

0 2,175 .23 .421 -.072 .000

1 773 .30 .460

4.3 Regression analysis

In this section, the results of the linear panel regression analysis are stated. The complete results are displayed in table 8. In this regression analysis, multicollinearity was further taken into account, and the corresponding Variance Inflation Factors (VIF) are established to be appropriate. Furthermore, boxplots indicated that all variables in the regression were normally distributed and were free from univariate outliers. Also, the presence of homoscedasticity was ascertained, and Mahalanobis Distances were computed and established to be appropriate. All regression models control for year fixed effects.

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During the regression analysis, several models were tested. First, the control variables only were included in the regression (model 1), to test to what extent these variables explain variation in firm value. This model led to an explanation of 31 percent (R² = 0.311, p < 0.01) of the variation. This model had significant findings for most of the control variables, of which profitability (ROA) explained the largest part of the variation in stock prices (β = 28.351, p <0.05). For industry sensitivity (ESI’s) and ‘Leverage’, however, no significant results were found.

In model 2, the assurance variable was added to the model with control variables only. Model 2, thus, measured the influence of assurance on firm values. This model explained the variation in stock prices to an increased extent (R² = 0.326, ΔR² = 0.015), relative to model 1. The variable ‘assurance’ was found to have a significant, positive relationship with ‘firm value’ (β = 6.97, p <0.01). Therefore, hypothesis 1 could be accepted, since sustainability assurance had a positive effect on firm values.

The next regression expanded model 2, by taking the influence of the type of assurance into account (model 3). In this model, the variable ‘type' was added as a moderator. This model explained the same amount of variation in stock prices (R² = 0.326). The relationship between ‘Type’ and ‘Firm value’ was found to be non-significant (β = 0.853, p = 0.261), which means that hypothesis 2 was rejected. In model 4, the moderating effect of ‘Big 4’ was measured instead of ‘Type’. This led to a small increase in explaining the variation in firm value (R² = 0.327, ΔR² = 0.001), relative to model 2. The moderating effect of ‘Big 4’ was found to be positively significant (β = 1.499, p = 0.036). The effect, however, is quite small. Hypothesis 3, nevertheless, could be accepted, since assurance by a Big 4 auditor was found to have a more positive impact on firm values relative to assurance by a non-Big 4 auditor. Similar results were found when taking the moderating effect of the level of assurance (model 5) into account (β = 1.333, p = 0.061). This led to the acceptance of hypothesis 4 as well, as reasonable levels of assurance were found to more positively affect firm values, relative to limited levels of assurance.

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Table 8. Results linear panel regression

Variable (1) (2) (3) (4) (5) Intercept -10.328*** -9.151*** -9.559*** -9.892** -10.101*** BVE .444*** .482*** .485*** .486*** .483*** NI 6.001*** 5.973*** 5.972*** 5.979*** 5.976*** Revenues .887*** .752*** .758*** .764*** .777*** ESI’s -.453 -1.477 -1.468 -1.51 -1.44 Inst_Cont. 15.308*** 14.908*** 15.037*** 15.105*** 15.02*** ROA 28.351** 31.275*** 31.14*** 31.089*** 31.191*** Leverage -3.224 -5.201** -5.25** -5.259* -5.254** Ass. (H1) - 6.97*** 4.767** 3.125* 3.538* Type (H2) - - 0.853 - - Big 4 (H3) - - - 1.499** - Level (H4) - - - - 1.333* Adjusted R2 .311 .326 .326 .327 .327 F-Value 121.867*** 119.766*** 110.66*** 111.018*** 110.919*** Highest VIF 2.896 2.922 6.736 6.041 6.004

***, ** and * are statistically significant at 1%, 5%, and 10% respectively (based on two-sided testing).

4.4 Additional analyses

To test for the robustness of the analyses that are performed in the previous section, some additional analyses were performed here.

Multicollinearity

The results of the correlation table presented a high intercorrelation between ‘NI’ and ‘BVE’ (r = 0.765, p <0.01). This led to an issue of multicollinearity. To take this issue into account, additional regressions were performed to establish that the issue had no significant effect on the regression model. First, a regression was performed that excluded the variable ‘BVE’ (table 10), and second, a regression analysis was performed that excluded the variable ‘NI' (table 11). Both models are included in the appendix. The models had, besides the intercorrelations of the assurance-related variables, no issues of multicollinearity. Both models showed similar results regarding control and test variables. These additional regressions reinforced the robustness of the results of the main regression model, by showing that the high intercorrelations do not interrupt the results of the main regressions.

28 Developments over the years

To establish whether there is a trend in the sustainability assurance field, an analysis was performed to compare the different years of this study. The results of this analysis are stated in table 9. There appears to be no clear quantitative trend in the relative number of firms that assure their sustainability disclosures.

Table 9. Firms with assurance per year

N ass. M Change M 2013 588 140 .2381 - 2014 629 154 .2448 + .0067 2015 610 148 .2426 - .0022 2016 640 180 .2813 + .0387 2017 418 113 .2703 - .0110 Total 2,948 735

KPMG (2017) reported that there was a rise in sustainability assurance practices. The results of table 9, however, do not show such a rise. This might, however, be due to the fact that the countries in the sample of this research are already, somewhat, matured in the field of sustainability assurance. It might be the case that for less matured countries, the sustainability assurance practices are still rising, but that is beyond the scope of this study.

It is especially remarkable, that no rise in sustainability reports is shown in 2017, while the EU directive (2014/95/EU) was effective as of 2017. This indicates that, either, almost all firms that need to comply with the directive were already disclosing sustainability reports due to the maturity of countries in the sample, or not all firms are compliant. Another explanation might be that not all reports were submitted to the GRI database, since this submission is not mandatory. Also, firms can comply with the directive by other means than sustainability reports, like disclosing in management reports, separate reports, and on corporate websites.

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5 Discussion and Conclusion

In this last section, the findings of this study are discussed and the research question is answered. Also, possible explanations for the results and implications of this study are discussed. Hereafter, directions for future research are given. Finally, limitations of the study are mentioned.

5.1 Findings

In the first section of this study, the research question was introduced. The question asked whether independent assurance on sustainability disclosures increases the perceived firm value of investors. Furthermore, it was questioned whether this possible increase is affected by the level and provider of assurance. As shown in the results section, sustainability assurance does increase the perceived firm value of investors. These findings are consistent with the first hypothesis, and can be explained by the theories described in the theory section of this study.

These findings, furthermore, can be explained by the fact that sustainability has become increasingly important and relevant in today’s world, and investors started to realize that sustainable businesses are more future proof. The comparability and reliability of sustainability reports, however, are questionable, since there are several guidelines on how to report on sustainability (Braam & Peters, 2018). Investors, therefore, might add value to independent assurance by a professional, to increase the reliability of the sustainability reports.

Regarding the level and provider of assurance, the results show that the type of assurance has no influence, but level of assurance and difference between Big 4 and non-Big 4 providers, do. More specifically, a reasonable level of assurance increases perceived firm value to a higher extent than a limited level of assurance. Additionally, the perceived firm value is increased to a higher extent, when assurance is given by a Big 4 firm, relatively to a non-Big 4 firm. The difference between assurance given by an auditor and a sustainability consultant appeared to have no influence on the increase in perceived firm value.

The finding that type of assurance provider had no influence, was the only finding that was not in line with the hypotheses. A possible explanation for this finding is that the distinction between audit firms and non-audit firms is, in practice, not as black and white as might be assumed. Wong and Millington (2014), for example, state that, at present, it is common for non-accountant, sustainability experts, to be hired by audit firms. This indicates that, even though the assurance is formally given by an audit firm, the assurance process might actually be executed by non-auditors (Wong & Millington, 2014). This might blur the results regarding

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differences in perceived firm value, as types of assurance providers are somewhat intertwingled and no clear difference in approach appears.

It was hypothesized that the difference between Big 4 and non-Big 4 audit firms moderates the influence of sustainability assurance on perceived firms value. The results show that assurance provided by Big 4 audit firms are associated with higher perceived firm values than assurance provided by non-Big 4 audit firms. This finding can be explained by the fact that Big 4 firms are associated with higher independence and knowledge levels (Hodge, Subramaniam & Stewart, 2009).

Reasonable levels of assurance are associated with higher perceived firm values. This suggests that investors perceive reasonable levels as superior. As reasonable levels require more extensive procedures, the probability that irregularities in sustainability disclosures persist, is more limited. It might be that investors perceive this lower probability of irregularities as value adding, and consequently are willing to pay a premium for firms with a reasonable level of assurance on their sustainability disclosures. It is remarkable, however, that only 66 firm-years out of the 735 firm-years with assurance, had assurance with a reasonable level.

5.2 Implications

The findings of this study have implications for accountants, sustainability consultants, investors, firms, boards of directors, and governments. In the first place, accountants have to improve and innovate their services regarding sustainability assurance, since this study shows that there appears to be no difference in perceived value between assurance by accountants and non-accountants. This indicates that the services of accountants are not perceived as superior by investors. The fact that accountants, usually, charge more for sustainability assurance than sustainability consultants (Farooq & de Villiers, 2019), seems hard to justify when looking at perceived values to investors. This means that accountants have actually no justification to ask premium fees for their services. Sustainability consultants, on the other hand, have the potential to gain more market share, as the added value of their assurance for investors is the same as the, mostly more expensive, assurance by accountants (Farooq & de Villiers, 2019). These consultants are probably inconvenienced by the high reputation of accountants and specifically the Big 4 firms, and therefore find it difficult to increase their market share.

The results of this study indicate that sustainability assurance decreases information asymmetry between management and shareholders. This leads to better communication and