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Perkaitan nilai bagi pelaporan kemampanan: adakah jaminan dan jenis urusan assurer?
SAMPJ
13,4 The value relevance of
refers to doing business without
negatively impacting the sustainability reporting: does
environment, community, or
society as a whole. assurance and the type of
• sustainability
858 reporting is a way toassurer matter?
strengthen its long-
Received 12 August 2021 term strategy. Ephraim Kwashie Thompson
Revised 19 November 2021
29 December 2021
Department of Business Administration,
23 January 2022 Seoul National University of Science and Technology, Seoul, Republic of Korea
Accepted 23 January 2022
Olivier Ashimwe
Department of International Trade, Hannam University,
Daejeon, Republic of Korea
Samuel Buertey
Department of Economics and Finance, RMIT University Vietnam,
Ho Chi Minh City, Vietnam, and
So-Yeun Kim
Department of Business Administration,
Seoul National University of Science and Technology, Seoul, Republic of Korea

Abstract
Purpose – This paper aims to investigate the relationship between sustainability reporting and firm value,
and subsequently, ascertains the moderating effect of assurance and the type of assurer on the sustainability
reporting–firm value nexus.
Design/methodology/approach – The study is based on sample firms from the Johannesburg Stock
Exchange (JSE) in South Africa. The fixed-effect panel data analysis method is used to estimate the
coefficients of the variables.
Findings – A significant positive relationship is found between sustainability reporting and firm value. The
results also suggest that sustainability assurance has significant explanatory power on firm value.
Furthermore, the authors found that the market is unable to distinguish between sustainability assurance
services provided by Big 4 audit firms and specialist consultant firms.
Practical implications – The authors expect managers will see sustainability reporting and assurance as
a business strategy with incremental market value. The study should also serve as a reference for
stakeholders engaged in the advocacy for the adoption of sustainability assurance practices on the JSE and
other emerging markets.
Social implications – The study finds that the South African market rewards firms that purchase third-
party assurance to guarantee the integrity of their corporate social responsibility reports. This understanding
could help encourage more firms to embrace the concept of sustainability assurance.

Sustainability Accounting,
Management and Policy Journal Part of this work was done while Ephraim was affiliated to Korea University.
Vol. 13 No. 4, 2022
pp. 858-877 Funding: This study was financially supported by Seoul National University of Science and
© Emerald Publishing Limited Technology.
2040-8021
DOI 10.1108/SAMPJ-08-2021-0329 “Declarations of interest: none.”
Originality/value – The study offers a first-hand information on how market participants in Value
Johannesburg, an emerging economy, view sustainability assurance and the services provided by the
different assurers. relevance of
Keywords Sustainability assurance, Corporate social responsibility, Firm value
sustainability
reporting
Paper type Research paper

1. Introduction 859
The relevance of corporate social responsibility (CSR) engagement and reporting has been
well documented in the literature (Richardson and Welker, 2001; Cormier et al., 2009;
Schadewitz and Niskala, 2010; Dhaliwal et al., 2011; De Klerk et al., 2015; Lenz et al., 2017;
Horn et al., 2018). In recent times, however, there has been a growing demand for the
assurance of CSR or sustainability reports. The demand stems from concerns regarding the
transparency and reliability of most of the sustainability reports disclosed by companies
(Cho et al., 2012; Buertey, 2021). Ackers and Eccles (2015) explain the tendency for
unscrupulous companies to falsify their sustainability reports to reap the benefits of strong
CSR performance. According to Manetti and Becatti (2009), there is a credibility gap in
sustainability reports, reducing their usefulness. To guarantee the integrity of their
sustainability disclosures, therefore, firms are spending huge sums of money to purchase
assurance. Although the extant literature is inundated with studies on the value relevance of
CSR and sustainability reporting, the same cannot be said about the value relevance of
assuring CSR and sustainability reports. The current study, therefore, extends the
discussion on the value relevance of sustainability reporting by examining whether the
assurance of sustainability disclosures and the type of assurance provider have any
incremental value for firms.
The International Auditing and Assurance Standards Board (IAASB, 2015, p. 3) defines
assurance as “an engagement in which a practitioner aims to obtain sufficient appropriate
evidence in order to express a conclusion designed to enhance the degree of confidence of the
intended users other than the responsible party about the outcome of the measurement or
evaluation of an underlying subject matter against some criteria.” The assurance of
sustainability reports is, therefore, a deliberate effort by firms to guarantee the transparency
and reliability of their sustainability reports. Although the decision to assure sustainability
reports is a voluntary initiative in most jurisdictions, empirical studies have documented a
continuous increase in sustainability assurance across the globe (Kolk and Perego, 2010;
KPMG, 2013; Ackers and Eccles, 2015; Cho et al., 2014; Liao et al., 2018; Sellami, 2019;
Buertey, 2021). Liao et al. (2018) report that the number of sustainability assurances has
gone up from four in 2008 to 33 in 2012 among Chinese firms. The study by Kolk and Perego
(2010) notes that about 40% of sustainable reports issued by large international
corporations are assured by a third party, and a study by KPMG reports of an international
assurance practice level of 40 and 46% in 2008 and 2011, respectively. Despite the reported
continuous growth in the assurance of sustainability reports, the value relevance of
sustainability assurance remains under-researched.
Given that sustainability assurance is largely a voluntary venture, which imposes a huge
financial burden on firms, it provides an appropriate setting to examine its relevance for
firm information users and firm value creation. While some studies have been done in this
regard (Fazzini and Dal Maso, 2016; Clarkson et al., 2019; García-Sanchez et al., 2019;
Radhouane et al., 2020; Reverte, 2020), the empirical evidence remains scanty, and the focus
has mainly been on developed economies. Again, even the scanty evidence remains
inconsistent (Maroun, 2020). For instance, whereas Reverte (2020) found evidence in support
SAMPJ of a positive relationship between sustainability assurance and firm value, the studies of
13,4 Cho et al. (2014) and Fazzini and Dal Maso (2016) found no incremental value for the
assurance of CSR disclosure. Similarly, while Reverte (2020) report that investors value the
quality of CSR assurance, García-Sanchez et al. (2022) found that the quality of assurance is
not well valued by the stock market. On this, prior studies (Simnett et al., 2009; Kolk and
Perego, 2010) have acknowledged that the value relevance of assurance is country-specific
860 and influenced by the national context in which companies operate. Hence, further studies
are needed to improve our understanding of the relevance of assurance to firm information
users. Thus, this study focuses on South Africa.
South Africa provides a good setting for this study. Unlike other jurisdictions where
issues of sustainability reporting are voluntary, the King Code of Governance for South
Africa, which gets enforced through the Johannesburg Stock Exchange (JSE) listing
regulations, has made sustainability reporting “a de facto mandatory requirement for all
JSE-listed companies, albeit on an ‘apply or explain’ basis” (Ackers and Eccles, 2015, p. 516).
This explains the increasing preference for assurance of sustainability disclosure in South
Africa (Marx and van Dyk, 2011; Ackers and Eccles, 2015; Rea, 2012; Buertey, 2021) and its
prevalence in comparison with other developed countries. It also supports the country’s
recognition in the literature as a leader in CSR and assurance among emerging economies
(Buertey, 2021). The question that remains unanswered, however, is the one raised by Rea
(2012, p. 26) “whether or not assurance actually adds value to the reporting process and/or to
the final outcomes shared with stakeholders” in South Africa. Second, a prior study (De
Villiers and Van Staden, 2010) has also documented a high level of shareholder interest in
sustainability issues in South Africa. The extent to which the interest of shareholders in
sustainability issues translates into active participation in the stock market and higher
value for firms remains an empirical question.
With the audit profession being highly regarded in South Africa (Ackers, 2009) and the
assurance market dominated by professional accounting firms (Ackers and Eccles, 2015), it
is imperative to examine how investors and shareholders value the assurance services
provided by these firms. The lack of empirical evidence to answer these questions creates a
gap in the extant literature that this study seeks to address. Altogether, the regulatory
environment, the interest of shareholders and the assurance market in South Africa present
a unique setting and data to examine the value relevance of sustainability reporting and
assurance.
Using 460 firm-year observations of the Sunday Times top 100 companies listed on the
JSE between 2015 and 2019, we found a significant positive relationship between
sustainability reporting and firm value, proxied by Tobin’s Q. We also found sustainability
assurance to be value relevant, suggesting that incremental benefits accrue to firms who
choose to obtain verification and certification of the assertions in their sustainability reports.
The evidence suggests that investors and stakeholders interpret the assurance of
sustainability reports as one that enhances the trustworthiness of the information disclosed
and thus reward firms who invest to assure their reports. The study further reveals that the
type of assurer does not have any significant value relevance to firms. Thus, the market
does not or is unable to distinguish sustainability assurance services based on the type of
assurer, either by a Big 4 audit firm or by a specialist consultant firm.
Our study has various contributions. First, it enriches the sustainability reporting and
assurance literature, particularly from the perspective of an emerging market. To the best of
our knowledge, this is the first study examining the incremental value relevance of
sustainability assurance and the type of assurer from an African and an emerging market
perspective. While much has been done on CSR and sustainability reporting, sustainability
assurance remains a fertile research area that continues to gain the attention of both policy- Value
makers and researchers in recent times. Most of the available studies on the subject are, relevance of
however, from advanced economies. Our study will fill the lacuna in the literature from the
viewpoint of developing and emerging markets.
sustainability
Second, while the greater part of existing work on sustainability is centered on the value reporting
relevance of sustainability reporting, this study extends the literature by examining whether
sustainability reporting and assurance function as substitutes or complements in enhancing
firm value. The results as presented demonstrates that sustainability reporting and its
861
assurance both play complementary roles in enhancing firm value. The finding contradicts
prior arguments that CSR and assurance is a wasteful venture that destroys firm value and
is an expression of agency problems (Friedman, 1970; Cheng et al., 2013). It also differs from
the works of Cho et al. (2014) and Fazzini and Dal Maso (2016) who documented no
significant relationship between the assurance of sustainability disclosures and firm value.
Our finding is an endorsement of the recent global advocacy for sustainability reporting and
assurance by firms to improve transparency and accountability. This will enhance market
confidence and subsequently firm value.
Again, the result on the value relevance of the type of assurer offers first-hand
information on how market participants in Johannesburg where the audit profession is said
to be highly regarded (Ackers, 2009) view the different assurance providers in the capital
market. This finding is important because it will guide firms when purchasing third-party
assurance for their sustainability reports. Thus, as the result shows that the market
provides no significant marginal benefit for purchasing assurance from the Big 4
professional accounting firms, managers can engage the services of equally accredited non-
Big 4 professional assurance providers as it would serve the same purpose.
Practically, the findings would also guide firms that are yet to adopt or may be
considering adopting sustainability reporting and assurance as part of their business
strategy. Managers and boards of corporate institutions should begin to view sustainability
assurance as a long-term investment venture with incremental market value. The findings
should also provide impetus to promoters and advocates for the adoption of sustainability
and assurance practices by firms on the JSE and other jurisdictions at large.
The rest of the paper is structured as follows. The next section focuses on the theoretical
framework and the setting of the study. Section 3 explains the research method, including
the sample, variable definitions and measurement and model specifications. The findings
are reported in Section 4, while Section 5 covers the discussion and conclusion of the study.

2. Theoretical lens and development of hypotheses

The value relevance of CSR and assurance is explained within the framework of legitimacy
and stakeholder theories, which are consistent with prior studies by Fazzini and Dal Maso
(2016), García-Sanchez et al. (2019) and Radhouane et al. (2020). The legitimacy theory is
based on the belief that a social contract exists between business and society (Donaldson
and Dunfee, 1995). The social contract denotes the explicit and the implicit expectations of
society about an organization. These expectations change over time, and an organization
must be responsive to such changes. A break of the social contract could lead to sanctions, a
limitation on available resources, or a reduced demand for the organization’s products. One
way by which firms seek to legitimize their actions is through the information they supply
to the community. In this regard, managers may voluntarily disclose CSR information to
reinforce the organization’s legitimacy (Radhouane et al., 2020). Through the pursuit and
disclosure of CSR reports, firms fulfil their social contract and gain approval and recognition
SAMPJ within the society. Legitimacy is, therefore, an important resource for firm survival and
13,4 growth.
The premise of legitimacy theory does not differ from the tenet of the stakeholder theory
that argues that organizations have a responsibility toward all groups or parties who are
influenced by and or who influence the organization. Donaldson and Preston (1995) posit
that stakeholder management requires that organizations pay simultaneous attention to the
862 legitimate interests of the various stakeholders in their decision-making process. The
engagement and disclosure of CSR reports have become an approved way by which firms
address and meet the needs of the various stakeholder groups such as market participants,
employees, suppliers, customers, governmental agencies and the communities within which
they operate.
From both the legitimacy and stakeholder theories’ perspective, CSR information is
considered value relevant, and investors use it in their assessment of a company (Luo et al.,
2015; Cheng et al., 2014). When a firm takes into account the interests of the various
stakeholders, it improves its risk estimation, which may lead to value creation. Eccles et al.
(2011), Al-Shaer (2018) and Bernardi and Stark (2018) argue that CSR information is useful
to market participants in their valuation decision, and it is associated with favorable buy
recommendations by analysts. Such disclosures provide incremental information about the
company, which allow shareholders to evaluate better the firm’s future earnings and the
potential risks related to its cash flows (Aerts et al., 2008). Thus, CSR disclosure turns
private information into public, reducing the information risk of market participants,
thereby improving the liquidity of a company’s shares (Orens and Lybaert, 2007; Kim et al.,
2014). A recent study by Flammer (2013) documents that investors pay more for the stock of
socially responsible firms.
Despite the theoretical support, the evidence regarding the usefulness of CSR disclosure
is inconsistent. Campbell and Slack (2011) note that sell-side security analysts do not regard
CSR reporting as useful, and Hawn, Chatterji and Mitchell (2018) report that investors do not
consider CSR performance as important. Orlitzky (2013) also claims that CSR disclosure
“creates noise and increases information asymmetry.” In this regard, Radhouane et al. (2020)
argue that investors may integrate CSR disclosure into their valuation if the information is
deemed credible. Thus, guaranteeing the credibility of CSR disclosure through assurance
may result in better investor valuation and the value relevance of CSR information.
According to the Global Reporting Initiative (GRI) (GRI, 2013, p. 6), “the use of external,
independent reviews of sustainability management processes and final disclosures is
intended to increase the robustness, accuracy and trustworthiness of disclosed information.”
Thus, independent assurance of sustainability disclosures alleviates the information
asymmetry between corporate managers and users of firm information. Hodge et al. (2009)
maintain that third-party assurance adds credibility to sustainability reports mainly by
enhancing their perceived and actual quality. In line with this premise, firms are spending a
lot of their already scarce resources to assure their CSR reports, yet the empirical evidence
on what value this adds to the firm bottom line remains scanty (Garcia-Sanchez et al., 2022).
A study in the USA by Cho et al. (2014) found no association between the assurance of CSR
reports and market value. Using a sample of Italian firms, Fazzini and Dal Maso (2016)
report that although the market values the voluntary disclosure of environmental reports,
the assurance of same has no incremental market value. On the contrary, a study by Reverte
(2020) shows that investors in Spain reward firms that assure their sustainability reports
through share price appreciation. Maroun (2020) opines that the available evidence on the
value relevance of CSR assurance is limited, hence the need for further studies.
 South Africa’s position as a leader in CSR promotion and reporting in Africa and among Value
emerging economies (Buertey et al., 2020) presents a unique institutional context to extend relevance of
the study on the incremental effect of CSR disclosure and assurance. The regulatory
environment has increased firm engagement in sustainability issues. There is also a high
sustainability
level of interest from market participants in sustainability issues (De Villiers and Van reporting
Staden, 2010). Again, Ackers (2009) indicates that despite the country’s status as a
developing nation, the prevalence of sustainability assurance among South African firms
compared favorably with that of firms in developed economies. Using the legitimacy and 863
stakeholder theories, we argue that the assurance of CSR information will reinforce the value
relevance of CSR disclosure in South Africa. This leads us to the following hypotheses:

H1. There is a positive relationship between CSR disclosure and firm value.
H2. Assurance will strengthen the positive relationship between CSR disclosure and
firm value.
Unlike the financial audit market, which is mainly dominated by the Big 4 audit firms
(Sierra et al., 2013), there is currently no unanimity about who should provide independent
assurance services or the competencies and criteria for these providers (Al-Hamadeen, 2007;
Ackers and Eccles, 2015). Presently, the providers of independent assurance of
sustainability reports range from audit firms to specialist consultancies. Studies, however,
have shown that the market for sustainability assurance is dominated by audit firms
(Deegan et al., 2006b; Simnett et al., 2009; Mammatt et al., 2010). An international
investigation of sustainability assurance practices of 212 Fortune Global 250 companies for
the years 1999, 2002 and 2005 by Kolk and Perego (2010) reports that firms in countries that
are shareholder-oriented and have a lower level of litigation tend to choose large audit firms
as assurance provider. However, in their assessment of the extent to which current
assurance practices improve transparency and accountability to stakeholders, O’Dwyer and
Owen (2005) raised a question regarding the independence of the assurance exercise. The
authors observed that accountant assurers tend to “adopt a cautious, limited approach
aimed at providing low assurance levels,” while consultant assessors “tend to take a more
evaluative approach, and appear to provide higher level assurance” (p. 205). Howbeit, the
independence of the consultant assessors remains questionable. A study in Australia and
New Zealand by Farooq and De Villiers (2018) indicates that while professional audit firms
use the International Standards on Assurance Engagement 3000 (ISAE3000) in the
assurance of sustainability reports, non-audit firms prefer AA1000 Assurance Standards.
In a recent study, Zaman et al. (2021) document a dominance of accounting firms in the
sustainability assurance market in Australia and New Zealand, providing about 92% of the
sustainability assurance services in both countries. A study by Ackers and Eccles (2015)
in South Africa established that while the Big 4 audit firms collectively dominate the
sustainability assurance market, an emerging trend indicates that their dominance is
decreasing due to the growth in the engagement of specialist sustainability assurers.
According to Zaman et al. (2021), given the different professional groups engaged in the
assurance of sustainability reports, the assurance statements they produce are consequently
heterogeneous. In view of this, O’Dwyer and Owen (2005) suggest that sustainability
assurance services by professional audit assurers should be distinguished from those
performed by non-auditors. In fact, empirical evidence shows that the assurance services
provided by accounting firms differ from that of consulting firms (Maroun, 2020). Thus, we
expect the assurance provided by professional audit firms (Big 4) to have an incremental
market value and play a complementary role in enhancing the relationship between
SAMPJ sustainability reporting and firm value. To ascertain this empirically, the third hypothesis is
13,4 put forth:

H3. Assurance provided by Big 4 audit firms will strengthen the positive relationship
between CSR disclosure and firm value.

864 2.1 Research context

Environmental, social and corporate governance (ESG) issues in South Africa are mainly
guided by the King Code of Governance for South Africa. Visser (2002) considers the King
Code as the most significant milestone for South African companies when it comes to ESG.
Since its inception, the King Committee on Corporate Governance has issued four reports in
1994, 2002 and 2009 with a fourth revision in 2016. The King Code is a voluntary attempt to
promote broader stakeholder accountability by South African companies. To improve the
transparency and reliability of sustainability-related non-financial disclosures, the
principles of King III require adopting companies to provide independent assurance of their
sustainability disclosures (IoD, 2009). The call for companies to assure their sustainability
disclosures is covered within the following principles of Chapter 9 of the King III (Integrated
Reporting and Disclosure): “The board should ensure the integrity of the company’s
integrated report; and, sustainability reporting and disclosure should be independently
assured” (IoD, 2009, Principles 9.1 and 9.3 respectively, p. 110). The King III is, however,
silent on the sustainability components that should be assured as well as the extent and
scope of assurance to be obtained by companies.
Although the King Code is voluntary, it gets enforced through the listing regulations of
the JSE. This, according to Ackers and Eccles (2015, p. 516), has made the principles of the
King Code “a de facto mandatory requirement for all JSE-listed companies, albeit on an
‘apply or explain’ basis.” Theoretically, it could, therefore, be said that regulation and social
pressure are the main contributing factors in the adoption of sustainability assurance by JSE
firms. However, even before the JSE backed King Code on the assurance of sustainability
disclosures were instituted, some companies had already taken voluntary initiatives to
assure their reports. The studies of Rea (2012) and Marx and van Dyk (2011) provided an
overview of sustainability reporting and assurance practices among JSE-listed companies
prior to the recommendations of King III. Specifically, the study by Rea (2012) found that
30% of CSR disclosures by South African companies were assured, and that the greater
majority (83%) of the assurance services were provided by audit firms. Marx and van Dyk
(2011) also provided an overview of sustainability reporting and assurance practices among
companies listed on the JSE Socially Responsible Investment (SRI) index for 2009. Out of
their sample of 40 firms, 35% obtained some form of assurance (external and internal
assurance) on their sustainability disclosures.
The periods subsequent to the King III saw significant growth in sustainability
assurance among JSE-listed companies. A study by Ackers and Eccles (2015) investigated
the frequency of CSR assurance provisions by the largest 200 JSE-listed firms on the back of
the requirements of the King III code and the JSE listing requirements (IoD, 2009). The
authors observed a steady growth in the assurance of CSR disclosures in the aftermath of
the implementation of King III. From 9% in 2007/2008, CSR assurance rose to 22% in 2010/
2011 and 26% in 2011/2012. Cumulatively, CSR assurance grew by 178% over the five-year
period covered by their study. More recently, Buertey (2021) reports that almost 49% of CSR
reports issued by the Sunday Times top 100 companies between 2015 and 2018 are assured
by a third party. These findings are a demonstration of the commitment of South African
firms in meeting the requirements of the King Code as well as the information needs of
stakeholders. The value relevance of the growth in the assurance of sustainability reports, Value
however, remains an empirical question. According to Ackers (2009), the audit profession in relevance of
South Africa is highly regarded. However, it is reported that the audit profession’s
dominance in the assurance of sustainable reports in South Africa “was being eroded by
sustainability
specialist sustainability assurers providing higher levels of assurance, despite concerns reporting
about the rigor of their assurance methodologies” (Ackers and Eccles, 2015, p. 515). Ackers
and Eccles (2015) also observed an inconsistent application of sustainability assurance
practices in South Africa, which they argue impairs “the ability of stakeholders to
865
understand the nature and scope of CSR assurance engagement” (p. 515). These unique
features of the sustainability assurance environment in South Africa provide a good setting
to examine how the assurance of sustainability reports improves the value of firms and
whether the type of assurance provider has any effect on the sustainability report assurance
and the firm value nexus.

3. Research method
3.1 Sample size and data
The study population is companies listed on the JSE in active operation from the period
2015–2019. However, owing to the labor intensiveness of collecting sustainability assurance
data, a sample limitation became necessary. Consistent with prior studies (Dawkins and
Ngunjiri, 2008; Ackers, 2009; Marx and van Dyk, 2011; Buertey, 2021)[1], a sample consisting
of the JSE Sunday Times 2019 top 100 companies were selected. Akin to the S&P 500 index in
the USA, the Sunday Times top companies are JSE-listed firms that created the highest
wealth and value for shareholders over a five-year period (https://arenaevents.africa/).
For this study, however, a company included in the sample must have complete data
covering the research period. Based on this criteria, eight companies were excluded from
the sample due to incomplete data and or due to the consolidation of the reports of the
companies with that of the parent company. The final sample is made up of 92 firms
over a five-year period with a total of 460 firm-year observations. Data on sustainability
assurance was extracted from both companies’ sustainability reports and the integrated
reports. This was cross-checked with available data from the GRI database. Market data and
fundamentals were obtained from Compustat. Table 1 reports the sample selection.

3.2 Research variables and measurement

Tobin’s Q represents the proxy for firm value and the dependent variable of the study.
Tobin’s Q is considered a measure of long-term performance that incorporates both a
company’s future cash flow and its inherited risk (De Villiers and Marques, 2016). Following
prior studies (Xu et al., 2007; Ferreira and Matos, 2008; Bose et al., 2017), Tobin’s Q is
measured as the book value of total assets minus the book value of equity, plus the market

Sampled years 2015 2016 2017 2018 2019 Total

Initial sample 100 100 100 100 100 500

Less: firms with incomplete data/consolidated 8 8 8 8 8 32
Final sample 92 92 92 92 92 460
Assurance: assured 36 38 39 42 44 199 Table 1.
Not assured 56 54 53 50 48 261 Sample selection and
Total 92 92 92 92 92 460 breakdown
SAMPJ value (MV) of equity, divided by the book value of total assets. The MV is market value four
13,4 months after the financial year-end of the company. Using four-month after the fiscal year
ended will ensure that sustainability reports are available to investors, so this information
can be reflected in their valuation of a company (Xu et al., 2007; Al Jifri and Citron, 2009;
Berthelot et al., 2012). The first independent variable, CSR disclosure, is the firm’s CSR
disclosure score as reported by CSRHUB, a global CSR rating institution. The second
866 independent variable of interest, sustainability assurance, is a dichotomous variable
measured as 1 if a firm assures its sustainability disclosure, and 0 if otherwise (Kolk and
Perego, 2010; Sellami et al., 2019; Buertey, 2021). The third independent variable, type of
assurer, is also a dichotomous variable measured as 1 if a firm is assured by a Big 4 auditing
firm, and 0 if otherwise.

3.3 Control variables

Following a careful review of literature, (Cheng, 2008; Kaspereit and Lopatta, 2016; Gupta
et al., 2017; Jenwittayroje and Jiraporn, 2017; Reverte, 2020), the potential effect of a
company’s board and other firm fundamentals on firm value are controlled for in the study.
For instance, board independence (BoDIND), measured as the ratio of independent directors
to board size, is included in the model. From the agency theory viewpoint, independent
directors are to monitor the activities of management to reduce agency cost. Increasing the
independence of the board, therefore, improves market confidence and may enhance firm
value (Jenwittayroje and Jiraporn, 2017). Earnings before interest and taxes scaled by total
assets controls for firm performance (ROA). We expect higher returns to draw the interest of
investors to the shares of the company. Active trading in the shares of the company will
increase the share price and the firm’s MV. The ratio of total debt to total asset controls for
leverage (LEV), a reflection of a company’s indebtedness. Companies with high leverage
levels may be less attractive to investors, which will inversely affect the firm’s value
(Kaspereit and Lopatta, 2016; Reverte, 2020). The log of total assets is used to control for
firm size (SIZE). Firm size may have a positive effect on a company’s value because size
reflects the scope of a company’s operation (Cheng, 2008; Kaspereit and Lopatta, 2016). The
work of Baker et al. (2002) established that dividend payment (DIVP) has a positive impact
on firm value. DIVP controls for the ex-post effect of dividend on the market capitalization of
firms and is measured as the amount of dividend paid scaled by total assets. Prior study
(Gupta et al., 2017) has shown that investment in research and development (R&D EXP) has
a positive effect on firm value. R&D EXP is scaled by total assets. Refer to Appendix 1 for a
definition of the variables.

3.4 Research model

Panel data analysis technique is used in this study. The fixed-effects model was
chosen over the random effects based on the results of a Hausman specification test
(F-test < 0.05). Thus, the model controls for industry and year fixed-effects. In
examining the value relevance of sustainability assurance, three analyses are
performed. The first equation examines the relationship between sustainability
disclosure and Tobin’s Q, which is a test for our H1. Equations (2) and (3) test H2 and
H3, respectively:

Tobin’s Qit ¼ a þ b 1 0 CSR_Dit þ g 0 Zit þ e

n j þ yt þ « it (1)
 Tobin’s Qit ¼ a þ b 1 0 CSR_Dit þ b 2 0 Assuranceit þ b 3 0 CSR_Dit * Assuranceit þ g 0 Zit Value
þe
n j þ yt þ « it relevance of
(2)
sustainability
reporting
Tobin’s Qit ¼ a þ b 1 0 CSR_Dit þ b 2 0 Big4Assuranceit þ b 3 0 CSR_Dit * Big4Assuranceit
867
þ g 0 Zit þ e
n j þ yt þ « it
(3)

where Tobin’s Q represents firm value. CSR_D is the firm’s CSR disclosure score, Assurance
is a dummy variable equal to 1 for firms that purchased independent assurance, and
Big4Assurance is a dummy variable equal to 1 if assurance services are provided by a
global Big 4 audit firm. Zit represents board characteristics and firm fundamentals serving
as the control variables presented in Appendix 1, ñj is industry fixed effects, yt is year fixed
effects and ½« it  represents the fixed effect error term.

4. Empirical results
4.1 Summary statistics
Table 2 presents the summary statistics of the research variables. The mean value of
Tobin’s Q is 2.0202, which suggests that our sampled companies have high growth
opportunities. On average, 43% of companies assured their sustainability reports during the
study period. The mean and maximum CSR_D score is 54 and 70 points out of 100,
respectively. Also, the average profitability during the period is almost 5% of assets. The
mean of leverage is 54%, suggesting that on average more than half of the assets of
companies in our sample are financed through debt. Log of assets, a proxy for firm size, has
a mean of 10.4037 and a maximum of 14.6377. During the period, 47% of companies
declared and paid dividend. Mean R&D expenses is 0.6732, while about 59% of all board
directors identify as independent directors.
Table 3 presents the results of the Pearson correlation among the research variables. We
observed a positive significant correlation between our main variables of interest, Assurance
and Tobin’s Q. These control variables; ROA, R&D EXP and BoDIND, are also positive and
significantly correlated with Tobin’s Q. SIZE and DIVP, however, negatively correlate with
Tobin’s Q. The Pearson correlation matrix helps to detect the presence of any econometric

Variables Mean SD Min Max

TOBIN’S Q 2.0202 1.7617 0.3800 9.8000

Assurance 0.4326 0.5206 0.0000 1.0000
CSR_D 54.0700 8.4500 25.0000 70.0000
ROA 0.0545 0.0677 0.1900 0.3300
LEV 0.5449 0.2356 0.0336 0.9806
SIZE 10.4037 1.4784 7.5531 14.6377
DIVP 0.4700 0.5000 0.0000 1.0000
R&D EXP 0.6732 1.5001 0.0000 5.8000
BoDIND 0.5894 0.1183 0.3000 1.0000
Table 2.
Note: The variables in the table are defined in Appendix 1 Descriptive statistics
SAMPJ problem such as multicollinearity in the model. From Table 3, the highest correlation value
13,4 is 0.469, and it is between SIZE and LEV. The value is below the 0.8 rule of thumb for
detecting the presence of multicollinearity (Hair et al., 2010).

4.2 Main results

Table 4 presents the results of our estimations. In carrying out the analysis, the data is
868 winsorized at 1 and 99% to eliminate outliers. Our model fit is acceptable with significant x 2
values (p < 0.00) and R2 values ranging from 31% to 46% for the three specifications. In
Model 1 of Table 4, we regressed Tobin’s Q over CSR_D using Model 1 stated under the
research models. The results show a significant positive relationship between CSR_D and
Tobin’s Q ( b = 0.130, p < 0.02). By inference, we can say that the issuance of a

Variables 1 2 3 4 5 6 7 8 9

1. TOBIN’S Q 1
2. Assurance 0.105* 1
3. CSR_D 0.040 0.406** 1
4. ROA 0.335** 0.204** 0.105* 1
5. LEV 0.092 0.113* 0.208** 0.408** 1
6. SIZE 0.392** 0.384** 0.256** 0.317** 0.469** 1
7. DIVP 0.110* 0.020 0.140** 0.149** 0.156** 0.110* 1
8. R&D EXP 0.133** 0.053 0.093 0.027 0.074 0.206** 0.090 1
9. BoDIND 0.102* 0.235** 0.164** 0.076 0.034 0.023 0.151** 0.090 1
Table 3.
Pearson correlation Notes: p-values are indicated with an asterisk. **, *
denote correlation is significant at the 1 and 5% levels,
matrix respectively. The variables are defined in Appendix 1

Model 1 Model 2 Model 3

Variables Coef. t-stats Coef. t-stats Coef. t-stats

CSR_D 0.130 2.602** 0.022 2.694*** 0.024 2.729***

Assurance 0.284 1.982**
CSR_D * Assurance 0.027 2.205**
Big4Assurance 0.009 1.592
CSR_D * Big4Assurance 0.026 1.386
ROA 0.308 6.019*** 0.234 4.608*** 0.903 3.950***
LEV 0.242 3.893*** 0.786 2.392*** 0.757 1.883*
SIZE 0.384 6.231*** 0.512 4.835*** 0.541 5.246***
DIVP 0.066 1.395 0.111 0.910 0.109 0.907
R&D EXP 0.068 1.499 0.101 1.532 0.674 1.463
BoDIND 0.064 1.462 0.084 0.315 0.248 0.427
Constant 6.615 4.451*** 6.248 4.203*** 6.122 4.653**
Year effect and industry effect Included Included Included
Adjusted R2 0.31 0.46 0.42
Number of observations 460 460 460

Notes: This table presents results of fixed effect regression of firm value, proxied by Tobin’s Q on firm
Table 4. CSR disclosure score, CSR assurance and assurance by Big 4 audit firms in Models 1, 2 and 3, respectively.
Multivariate Please see Appendix 1 for the variable descriptions. ***, **, *denote significance at the 1, 5 and 10% levels,
analyses respectively
sustainability report will likely lead to a 13% increase in a firm value. This provides support Value
for H1 and confirms the value relevance of sustainability reporting. relevance of
In Model 2, we observe a significant positive relationship between sustainability
assurance and firm value ( b = 0.284, p < 0.04), a strong indication that the independent
sustainability
assurance of sustainability reports has a positive influence on firm value on the JSE. reporting
Additionally, the results of the interaction “CSR_D*Assurance” show a significant and
positive effect on firm value with a higher coefficient, an indication that the assurance of
sustainability reports is definitely important. The results also demonstrate the 869
complementary relationship between sustainability reporting and assurance. The findings
provide support for H2.
In Model 3, we examined whether the type of assurer (Big4Assurance) a firm engages has
any explanatory power for firm value. The findings show no significant support for the
hypothesis put forth. We found an insignificant association between Big4Assurance and
Tobin’s Q ( b = 0.009, p < 0.12). Similarly, the interaction term “CSR_D*Big4Assurance”
provides no significant result. Thus, the market or investors do not distinguish among the
types of assurers engaged by firms on the JSE.
For the control variables, ROA and LEV have a positive relationship with Tobin’s Q,
while SIZE, on the other hand, showed a negative association with the dependent variable
across the three models. The other variables have no significant relationship with firm
value.

4.3 Robustness test

Ferreira and Matos (2008) argue that the use of Tobin’s Q may be biased because of potential
measurement error. To address any possible measurement error associated with the use of
Tobin’s Q, we follow the work of Ferreira and Matos (2008) and Bose et al. (2017) by
including the natural logarithms of Tobin’s Q as the dependent variable. The analyses
follow the three models previously discussed under the research model. The results reported
in Table 5 are in congruence with the previous findings reported in Table 4. Model 1
confirms that sustainability reporting is positively associated with firm value ( b = 0.120,
p < 0.01). In Model 2, we observe a similar result that indicates that the assurance of
sustainability reports improves firm value ( b = 0.1820, p < 0.09). Similarly, the results of
the interaction term, “CSR_D *Assurance”, show a significant and positive effect on firm
value ( b = 0.035, p < 0.06). These results are consistent with our first two hypotheses. We,
however, found no support for H3. The finding suggests that the type of assurance provider
does not add any significant economic value to the firm.
Again, following the examples of Ferreira and Matos (2008) and Bose et al. (2017), we
performed a second robustness test using 1/Tobin’s Q as the outcome variable. The results
(not tabulated) also affirm the value relevance of both sustainability reporting and
assurance, but not the type of assurance provider.

5. Discussion
In this study, three main hypotheses are tested: the value relevance of sustainability
reporting, the incremental value relevance of sustainability assurance and the type of
assurer engaged by a firm. In the first analysis, we observed a significant relationship
between CSR reporting and firm value. Economically, the results suggest that firms with
high sustainability disclosures are more likely to experience an increase in their MV. The
finding is consistent with prior authors (Dimson et al., 2015; Loh et al., 2017; Kim et al., 2018)
who have argued that CSR engagement benefits firms and increases their value as against
arguments that CSR engagement destroys firm value (Galema et al., 2008; Friedman, 1970;
SAMPJ Model 1 Model 2 Model 3
13,4 Variables Coef. t-stats Coef. t-stats Coef. t-stats

CSR_D 0.120 2.749*** 0.026 2.250** 0.010 1.88*

Assurance 0.182 1.672*
CSR_D * Assurance 0.035 1.969*
Big4Assurance 0.161 1.153
870 CSR_D * Big4Assurance 0.008 1.120
*** ***
ROA 0.394 8.845 0.284 4.512 0.277 4.412***
LEV 0.315 5.815*** 0.148 2.802*** 0.145 2.757**
SIZE 0.439 8.175*** 0.086 6.280*** 0.089 6.541***
DIVP 0.078 1.906* 0.024 1.510 0.025 1.564
R&D EXP 0.101 2.555** 0.115 1.117 0.956 1.110
BoDIND 0.031 0.819 0.048 0.637 0.062 0.805
Constant 1.139 4.548*** 0.958 5.447*** 1.027 5.926***
Year effect and industry effect Included Included Included
Adjusted R2 0.47 0.44 0.38
Number of observations 460 460 460

Notes: This table presents results of fixed effect regression of firm value, proxied by LogTobin’s Q on firm
CSR disclosure score, CSR assurance and assurance by Big 4 audit firms in Models 1, 2 and 3, respectively.
Table 5. Please see Appendix 1 for the variable descriptions. ***, **, *denote significance at the 1, 5 and 10% levels,
Robust analyses respectively

Cheng et al., 2013). Investors who are part of the stakeholders of the firm view sustainability
engagement and reporting as a long-term investment with a future cash flow potential. An
earlier study by De Villiers and Van Staden (2010) indicates that shareholders in South
Africa show a strong interest in CSR issues, and that could partly explain our findings.
Consistent with the legitimacy and stakeholder theories, it could be argued that the
disclosure of sustainability information enhances firm reputation from the perspective of
stakeholders, and this translates into improvement in firm value. Thus, market participants
on the JSE respond positively to firms that make CSR initiatives part of their core business
strategy.
Consistent with our H2, we also found a significant positive relationship between the
assurance of CSR reports and firm value. This suggests that firms that guarantee the
integrity of their CSR reports through assurance experience a rise in their MV. We also
observed a positive and significant moderating effect of sustainability assurance on the
relationship between sustainability reporting and firm value. This result may be an
indication of the presence of a complementary effect of sustainability reporting and
assurance on firm value. Thus, the value of sustainability reporting to some extent is
contingent on assurance. The finding is, however, inconsistent with earlier evidence from
the USA and Italy by Fazzini and Dal Maso (2016) and Cho et al. (2014), respectively. It,
however, corroborates that of Reverte (2020) who reports from Spain that investors reward
firms that adopt independent sustainability assurance. Practically, what this means is that
the assurance of sustainability reports sends a “signal” to the market of the transparency
and trustworthiness of the disclosures made. As a result, the market rewards such firms in
the form of an increase in shareholders’ value. In the wake of recent concerns over the
possibility of the opportunistic use of sustainability disclosures (Merkl-Davies and Brennan,
2007; Cho et al., 2012; Ackers and Eccles, 2015), the validation of sustainability reports
through independent assurers enhances the credibility of the disclosed information. The
independent assurance process eliminates or reduces the potential of information Value
asymmetry between firm managers and the investment community. The reduction of relevance of
information asymmetry through the assurance process enhances firm value because it
mitigates the potential risk associated with investing (Pinsker and Wheeler, 2009). The
sustainability
empirical evidence demonstrates a strong market perception of the assurance of reporting
sustainability reports in South Africa.
In the final analysis, we did not observe any significant relationship between the type of
assurer and firm value. Thus, the incremental value of the type of sustainability disclosure 871
assurer is not statistically meaningful. This finding differs from prior studies like that
of Clarkson et al. (2013) and Radhouane et al. (2020) who found that the engagement of
professional accountants for assurance services enhances the value relevance of
sustainability reporting. Appendix 2 provides the distribution of sustainability assurance
providers by type and by year on the JSE. Although the traditional audit firms, Big 4,
dominate the assurance market in South Africa, one could observe a continuous increase in
the engagement of the other specialist sustainability assurers. The observation in
Appendix 2 corroborates that of Ackers and Eccles (2015) who reported that the Big 4 firms’
collective dominance in the sustainability assurance market in South Africa is decreasing
due to the growth in the engagement of specialist sustainability assurers. The empirical
evidence from the regression analysis suggests that the market currently does not value
assurance provided by a Big 4 audit firm over and above a specialist consultant firm.
However, this may be a reflection of the market’s inability to distinguish between the work
of auditors and specialist in the assurance of sustainability reports.

5.1 Contribution and conclusion

Unlike extant studies (Cemil and Ali, 2017; Horn et al., 2018; Sampong et al., 2018) that
mainly focused on the relationship between sustainability or CSR disclosure and firm value,
this study extends existing knowledge by examining the value relevance of the assurance of
sustainability reports and the type of assurer engaged. We provide evidence from the South
African context that the disclosure of sustainability reports and the assurance of same are
associated with market capital benefits, but not the type of assurance provider.
Theoretically, our finding contributes to the legitimacy and stakeholder theories in the
context of sustainability reporting and assurance. That is, when firms address the needs of
stakeholders through sustainability engagement and reporting, it enhances their public
image, improves acceptance and mitigates the potential risk associated with investing,
which may improve their value.
This study has answered a major concern raised by Rea (2012) when he noted that
despite the empirical evidence of the continuous growth in the assurance of sustainability
reports in South Africa, the contributing value of the assurance process remains
unanswered. Globally, the demand for the assurance of sustainability reports remains
unabated, and South Africa is no exception. As a leader in corporate governance and CSR
promotion and reporting in Africa and among emerging economies (Buertey et al., 2020), the
JSE, through the adoption of the King report, require JSE-listed firms to assure their
sustainability reports. Considering the huge capital investment required for such annual
engagement, there is the need to ascertain empirically the potential value of such
undertakings, and that is what this study has done.
Contrary to prior studies who found no association between sustainability assurance and
firm value, (Cho et al., 2014; Fazzini and Dal Maso, 2016), our study has shown that both
sustainability reporting and assurance have value relevance from the context of South
Africa. The findings, therefore, constitute new evidence from the context of an emerging
SAMPJ economy, relevant to the development of the sustainability and assurance literature. Thus,
13,4 the value relevance of sustainability assurance is not universal across all markets and
cannot be generalized.
By showing that sustainability assurance improves firm value, the finding should encourage
JSE-listed firms not to see the huge investment that goes into assuring their sustainability reports
as a wasteful venture, rather one with incremental MV. Also, the findings should provide
872 guidance and motivation to firms that are yet to adopt or may be considering adopting
sustainability reporting and assurance as part of their business strategy. Shareholders should
also begin to appreciate the investment firms make into assuring their sustainability reports.
Next, we expect the findings to engender discussions on sustainability reporting and assurance
among market participants, and also serve as a reference for regulators in the formulation of
policies for the promotion of sustainability reporting and assurance to promote firm
accountability and enhance transparency in the capital market.
In conclusion, we wish to acknowledge that this study mainly focuses on the Sunday
Times top 100 companies on the JSE. Thus, caution must be exercised when extrapolating
the findings across the entire population of firms on the JSE. This limitation
notwithstanding, the objectives of the study have been achieved, and the findings are worth
noting and relevant. As a recommendation, future studies may carry out country level as
well as a cross-country analysis to examine whether the moderating effect of assurance on
the nexus between CSR disclosure and firm value may be influenced by factors such as the
level of stakeholder activism, firm information environment and the type of legal systems at
play.

Note
1. Buertey (2021) limited his sample to the Sunday Times top 100 firms; Ackers (2009) limited his
sample to the top 100 listed firms on the JSE. Marx and van Dyk (2011) focused on the FTSE/JSE
top 40 Index, while Dawkins and Ngunjiri (2008) studied the top 100 companies on the JSE.

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Appendix 1 Value
relevance of
Variables Symbol Definition sustainability
Firm value Tobin’s Q MV of a company divided by its assets’ replacement
reporting
cost
CSR disclosure CSR_D Firm CSR disclosure score from CSRHUB
Sustainability assurance Assurance 1 if a firm assures its CSR report, and 0 otherwise 877
Assurance provider Big4Assurance 1 if a firm’s CSR report is assured by a Big 4 audit
firm, and 0 otherwise
Firm performance ROA Earnings before interest and taxes scaled by total
assets
Leverage LEV Ratio of total debt to total assets
Firm size SIZE Natural log of total assets
Dividend DIVP 1 if a company pays dividend, and 0 otherwise Table A1.
R&D EXP FIND R&D expenses in a fiscal year scaled by total asset Research variable
Board independence BoDIND Ratio of independent directors to board size definitions

Appendix 2

Assurance providers 2015 2016 2017 2018 2019 Total

Deloitte 4 5 5 6 5 25
Table A2.
Ernest and Young 6 6 5 7 7 31
KPMG 8 7 8 8 9 40 Distribution of
PWC 7 6 7 6 6 32 sustainability
Specialist consultants 11 14 14 15 17 71 assurance providers
Total 36 38 39 42 44 199 by year

Corresponding authors
Samuel Buertey can be contacted at: samuel.buertey@rmit.edu.vn and So-Yeun Kim can be contacted
at: s22kim@seoultech.ac.kr

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