4.3. Fixing Model Defects
The regression results are presented in
Table 7 as follows.
4.3.1. Current Ratio Analysis
Liquidity—Unlike expectations, liquidity was not associated significantly with sustainability reporting practices. The coefficient estimate for liquidity was β = −0.082 (p > 0.05), suggesting that liquidity levels did not significantly influence the extent of sustainability disclosures among Vietnamese enterprises. Based on the empirical results of testing hypothesis 1, a p value of 0.164 was obtained, more significant than a = 0.05. Therefore, the results of this study did not support H1. Hypothesis 1 was rejected. This suggests that changes in CR do not significantly affect changes in sustainability reporting. From the results of this analysis, we do not find statistically significant evidence of the relationship between the current ratio and the quality of the level of SR disclosure in both positive and negative aspects. We find that companies with high levels of solvency or liquidity are considered capable of managing their businesses, resulting in low levels of risk. A highly liquid company is a company that has succeeded in paying short-term obligations promptly. However, the regression results show no relationship between CR and SR quality. This issue complements previous research conducted in which investors did not use additional information on social and environmental activities contained in sustainability reports as a reference to financial statements when providing loans to companies. Investors look at a company’s health more from its financial statements than its sustainability report, so liquidity does not influence the release of its sustainability report. This problem shows us that investors and creditors in Vietnam do not care about sustainable development reports when lending money to a company.
4.3.2. Assets Turnover (AT) Analysis
Based on the tests performed, a
p value of 0.013 was obtained, which was less significant than a = 0.05. Thus, the results of this study supported the second hypothesis. Hypothesis 2 was accepted. This suggests that changes in AT significantly affect the changes in the sustainability report. From the results of this analysis, we find statistically significant evidence of the relationship between the total asset turnover ratio and the quality of SR disclosure on the positive side. We found that this index is one of the indicators that directly affects a business’s profits and revenue. AT provides information about a business’s ability to generate revenue from its assets. A high AT can be a sign that a business is managing its assets effectively, leading to revenue and profit growth, which all businesses want. However, the regression results show that there is a positive relationship between AT and the quality of SR. This issue can be explained by the fact that businesses emphasize economic efficiency, and economics is also one of three factors in the sustainability triangle model. Therefore, managers always want to beautify their company’s financial statements. Meanwhile, according to research by
Son et al. (
2023), the total asset turnover index harms financial statements; that is, when a business increases its total asset turnover, this will increase its financial risk. Although this index is essential, it is equally risky, so businesses will be sensitive to it and consider using it to consider sustainability.
4.3.3. ROE and Liquidity Analysis
Regression Analysis—Regression analyses examined the relationship between financial indicators and sustainability reporting practices among Vietnamese enterprises. Three vital financial indicators were considered: profitability, liquidity, and leverage. Profitability—The regression analysis revealed a statistically significant positive relationship between profitability and the extent of sustainability disclosures. Companies with higher profitability tended to disclose more information on environmental, social, and governance (ESG) factors in their sustainability reports. The coefficient estimate was β = 0.347 (p < 0.05), indicating that a one-unit increase in profitability was associated with a 0.347-unit increase in the extent of sustainability disclosures, holding other variables constant. Based on the empirical results of testing hypothesis 3, a p value of 0.001 was obtained, less significant than a = 0.05. Therefore, the results of this study support the H3. Hypothesis 3 is accepted. This suggests that changes in ROE significantly influence changes in the sustainability report. From the results of this analysis, we find statistically significant evidence of the relationship between ROE and the quality of the level of SR disclosure in positive aspects.
The higher this index, the better the company’s efficiency in using equity capital. When investors believe in the value of a business, they are willing to invest more, helping the business increase its capital and financial resources, thereby improving operating efficiency and ROE. Businesses with high ROE have more resources and motivation to invest in sustainable development activities, thereby improving the country’s and the world’s sustainable development indicators. However, the regression results show the relationship between ROE and SR quality. This issue is similar to previous studies by
Thu et al. (
2022) when they argue that the ROE variable, representing profitability, is positively associated with all sustainability reporting variables. This problem can be explained by the fact that while ROE depends on the components of operating efficiency, capital structure, and risk, the quality of sustainability reporting depends on the sense of social responsibility of the business. These factors can act independently or affect each other, making the relationship between ROE and sustainability reporting quality complex and challenging to predict. A business with a high ROE may not have high-quality sustainability reporting if that business focuses on short-term profitable activities without paying attention to sustainability issues; for example, short-term cost-reduction measures, such as cutting environmental or personnel costs, may be used. These measures can help businesses improve ROE but reduce sustainability reporting quality.
Leverage—The regression analysis also found a significant negative relationship between leverage and the extent of sustainability disclosures. Companies with higher leverage ratios tended to disclose less information on ESG factors. The coefficient estimate was β = −0.215 (p < 0.01), indicating that a one-unit increase in leverage was associated with a 0.215-unit decrease in the extent of sustainability disclosures, holding other variables constant. Hypothesis 4 was accepted.
Correlation Analysis—Correlation coefficients were calculated to assess the strength and direction of the relationships between financial indicators and sustainability reporting variables. Profitability or ROE exhibited a moderate positive correlation with the extent of sustainability disclosures (r = 0.347, p < 0.01). Liquidity showed a weak negative correlation with sustainability disclosures, although the correlation was not statistically significant (r = −0.082, p > 0.05). Leverage or the debt-to-equity ratio demonstrated a moderate negative correlation with sustainability disclosures (r = −0.215, p < 0.01). Content Analysis—Content analysis of sustainability reports revealed variations in the quality and extent of disclosures across different companies and industries. While some companies provided comprehensive disclosures covering a wide range of ESG factors, others had limited or superficial disclosures, particularly regarding social and governance aspects. Comparative Analysis—Comparative analysis with international standards and practices highlighted similarities and differences in sustainability reporting practices among Vietnamese enterprises compared to companies in other countries. Vietnamese companies generally lag regarding the depth and breadth of sustainability disclosures, particularly in governance-related areas.
Case Studies—Case studies of selected Vietnamese enterprises provided qualitative insights into the motivations, challenges, and strategies influencing sustainability reporting practices. Companies with strong corporate governance structures and a clear commitment to sustainability tended to have more robust reporting practices. Sensitivity Analysis—Sensitivity analyses were conducted to test the robustness of the results, confirming the stability of regression coefficients and correlation coefficients under different specifications and data transformations. Overall, the results suggest that profitability positively influences sustainability reporting practices among Vietnamese enterprises, while leverage negatively impacts the extent of disclosures. Liquidity, however, did not significantly affect sustainability reporting. These findings provide valuable insights for businesses, policymakers, and stakeholders seeking to enhance sustainability reporting practices in Vietnam.
Alternative Specifications—Conduct robustness checks by employing alternative specifications of the regression models. This issue may include using different functional forms, such as log-linear or quadratic specifications, to test the sensitivity of results to model specification. Control Variables—Include additional control variables in the regression models to account for potential confounding factors. Variables such as firm size, industry type, and ownership structure can be included to control their influence on sustainability reporting practices.
Sub-Sample Analysis—Perform sub-sample analyses to assess whether the relationship between financial indicators and sustainability reporting varies across different subsets of the data. For example, separate analyses can be conducted for small versus large companies or companies operating in different industries. Bootstrapping—Employ bootstrapping techniques to assess the robustness of regression coefficients and test for the stability of results under different samples. Bootstrapping generates multiple random samples from the original dataset and calculates regression coefficients for each sample, allowing for the estimation of confidence intervals and hypothesis testing.
Building on the logic of stakeholder expectations, regulatory pressures, and strategic considerations, the hypothesis posits that financial indicators significantly influence the extent and quality of sustainability disclosures among Vietnamese enterprises, even after controlling for other relevant factors. By elucidating the causal relationship between financial indicators and sustainability reporting and addressing potential omitted variable bias, this study aims to contribute to the existing literature on corporate disclosure and sustainability in emerging economies. The revised introduction strengthens the study’s methodological rigor and theoretical foundations by acknowledging the need for control variables, emphasizing their importance in mitigating omitted variable bias, and incorporating them into the research model. This approach enhances the credibility and robustness of the empirical findings, ensuring a more comprehensive understanding of the relationship between financial indicators and sustainability reporting practices in Vietnam. Robustness check: we used the FMOLS estimators to ensure that the DOLS estimation was consistent.
Table 8 presents the models’ estimators FMOLS values.
Robust Standard Errors—Use robust standard errors in regression analysis to account for potential heteroscedasticity or autocorrelation in the data. Robust standard errors provide more reliable estimates of coefficients and standard errors, especially when the assumptions of classical regression analysis are violated. Outlier Analysis—Conduct outlier analysis to identify and assess the influence of outliers on the regression results. Outliers may distort the estimation of coefficients and standard errors so that sensitivity analysis can be performed with and without outliers to evaluate their impact on the findings.
Cross-Validation—Employ cross-validation techniques to assess the predictive performance of the regression models. Cross-validation involves splitting the data into training and testing sets and evaluating the model’s performance on the testing set to ensure its generalizability and robustness. By incorporating these robustness checks, the reliability of the study’s initial findings can already be further validated, enhancing the credibility of the study’s results.
4.4. Discussion
Compared to previous studies, this research addresses several notable gaps and differentiates itself in the following way. Focus on Vietnamese Enterprises—While there is a considerable body of the literature on sustainability reporting and its determinants, many studies have predominantly focused on Western contexts or larger emerging markets. This study explicitly targets Vietnamese enterprises, filling a significant gap in the literature by providing insights into sustainability reporting practices within the Vietnamese business environment.
Integration of Financial Indicators—Previous studies have often explored the determinants of sustainability reporting independently from financial indicators. This research uniquely investigates the influence of financial metrics on sustainability reporting practices, recognizing the interconnectedness of financial and non-financial performance in shaping corporate disclosure strategies.
Mixed-Methods Approach—While some studies have employed quantitative analysis or qualitative assessments separately, this research adopts a mixed-methods approach, combining quantitative analysis of financial data and qualitative evaluation of sustainability reports. By integrating multiple research methods, this study offers a comprehensive understanding of the relationship between financial indicators and sustainability reporting practices.
Nuanced Examination of Relationship—Previous research has provided insights into the determinants of sustainability reporting. However, it often lacks a nuanced examination of how financial indicators influence the quality and extent of sustainability disclosures. This study aims to bridge this gap by conducting a detailed analysis of the interplay between financial performance metrics and sustainability reporting practices, offering insights into the underlying mechanisms driving corporate disclosure decisions in the Vietnamese context.
Contextualization within Emerging Markets—While some studies have explored sustainability reporting in emerging markets, few have examined the Vietnamese context. This research contributes to the literature by contextualizing sustainability reporting practices within Vietnam’s unique socioeconomic and regulatory environment, offering valuable insights for businesses operating in similar emerging market contexts.
Cross-sectoral analyses are essential for understanding how the relationship between financial indicators and sustainability reporting practices may vary across different industries. This is how we can incorporate cross-sectoral analyses into the study: sector-specific regression analysis—conduct regression analyses separately for different sectors or industries within the Vietnamese economy. This approach allows for a more nuanced understanding of how the relationship between financial indicators and sustainability reporting may differ across sectors. We should analyze the coefficients of financial indicators (profitability, liquidity, and leverage) in each sector to identify any sector-specific patterns or differences in the influence of financial metrics on sustainability disclosures.
Comparative Sector Analysis—Compare the extent and quality of sustainability reporting across different sectors to identify sector-specific disclosure practices and trends. We should assess whether specific sectors prioritize certain ESG factors over others in their reporting based on their specific business models, supply chains, and stakeholder expectations. Case Studies Across Industries—Include case studies of companies representing various industries to provide insights into sector-specific challenges and opportunities related to sustainability reporting. We should explore how companies in different sectors approach sustainability reporting, considering regulatory environments, market dynamics, and competitive pressures. Industry-Specific Stakeholder Perspectives—Gather perspectives from industry stakeholders, including industry associations, trade unions, and consumer advocacy groups, to understand sector-specific priorities and expectations regarding sustainability reporting. We should incorporate stakeholder feedback into the analysis to contextualize the findings and provide a more comprehensive understanding of sector-specific dynamics. Policy Recommendations Tailored to Industries—Develop policy recommendations tailored to different industries’ specific needs and characteristics. For example, industries with high environmental impact may require more stringent reporting requirements and incentives for sustainability initiatives. We should consider sector-specific challenges and opportunities when designing regulatory frameworks, incentive mechanisms, and capacity-building initiatives to promote sustainability reporting practices. By integrating cross-sectoral analyses into the study, we can better capture the diversity of sustainability reporting practices across industries and tailor policy recommendations to address sector-specific needs and challenges. This approach enhances the relevance and applicability of the research findings for stakeholders in various sectors of the Vietnamese economy.
Indeed, earnings management practices are well documented in the literature and are often employed by companies to manipulate financial results to meet certain stakeholder expectations, including those of investors. This phenomenon can affect the relationship between financial indicators and sustainability reporting practices. This is how we can address this aspect in the study:
Earnings Management Considerations—Acknowledge the possibility of earnings management in interpreting financial indicators such as profitability (e.g., return on equity—ROE) and its potential impact on sustainability reporting practices. We should discuss how companies may strategically manage their earnings to influence financial metrics such as ROE, which could indirectly affect their incentives for sustainability reporting. Robustness Checks for Earnings Management—Conduct robustness checks to assess the potential influence of earnings management on the relationship between financial indicators and sustainability reporting. We should include additional control variables or alternative measures of financial performance that account for potential manipulation of earnings to ensure the robustness of the results. Qualitative Insights into Reporting Motivations—Incorporate qualitative insights from interviews, surveys, or case studies to explore the motivations behind companies’ sustainability reporting practices, particularly about earnings management concerns. We should probe into whether companies strategically leverage sustainability reporting as a mechanism to mitigate the negative perceptions associated with earnings management or to signal their commitment to long-term value creation. Stakeholder Perspectives on Reporting Integrity—Gather perspectives from various stakeholders, including investors, analysts, and regulatory authorities on the perceived integrity and reliability of sustainability reporting in the context of potential earnings management practices. We should explore stakeholders’ expectations regarding the transparency, accuracy, and disclosure quality of sustainability reports and how companies can address concerns related to earnings management.
Policy Implications for Reporting Integrity—Discuss policy implications to enhance the integrity and credibility of sustainability reporting, considering the challenges posed by earnings management practices. We should propose regulatory measures, enforcement mechanisms, and disclosure requirements that promote transparency and accountability in sustainability reporting, thereby mitigating the incentives for earnings management. By addressing the phenomenon of earnings management and its potential implications for sustainability reporting practices, the study can provide valuable insights into the complex interplay between financial indicators, stakeholder expectations, and reporting integrity in the Vietnamese context. This nuanced understanding can inform policy interventions and corporate governance practices to foster transparency, trust, and sustainability in corporate reporting.
Overall, this study contributes to the existing literature by offering a focused examination of the influence of financial indicators on sustainability reporting practices within Vietnamese enterprises, employing a mixed-methods approach to provide a comprehensive understanding of this relationship and filling significant research gaps in the field. Creating a sustainability report model generally follows the appropriate guidelines. It is supported by specific sets of sustainable standards, including the GRI standards or the development goals issued by the United Nations.
To find the relationship between the publication of sustainable development reports and positive changes in financial indicators, the research team divides the report into different groups of indexes to understand all aspects of the report. The research team decided to build a list of 13 social responsibility reporting indexes with four contents corresponding to four main aspects of the sustainability report: vision and strategy, economy, environment, and society to adapt to the demands of different parties and help enterprises address issues in the sustainable development disclosure process.
In this research, the shortage of data and the incomplete regulatory system are also factors that hinder the assessment of the relationship between financial indicators and the quality of the sustainable development report in Vietnam. The results of this study show a need for coordination between relevant parties, including businesses, governments, and investors, to improve the quality of sustainable development publications. Enterprises need to pay more attention to sustainability development factors in business operations and disclose the sustainable development report wholly and transparently. Management agencies need to complete and improve the system of regulations and standards on sustainable development reports to ensure uniformity and effectiveness. The relationship between financial indicators and the quality of sustainability report publication in Vietnam is complex. It needs to be further researched for a more accurate and complete assessment.
Expanding the policy implications section to include discussions of the results from the perspectives of various stakeholders can provide a comprehensive understanding of the implications for different actors involved. There is a need to elaborate on the policy implications:
Government and Regulators—The findings suggest that profitability positively influences sustainability reporting practices among Vietnamese enterprises. Policymakers may consider incentivizing sustainable practices by offering tax breaks or subsidies to companies that demonstrate firm commitments to ESG principles in their reporting.
Given the significant negative relationship between leverage and sustainability disclosures, regulators could introduce mandatory disclosure requirements for highly leveraged companies to enhance transparency and accountability in reporting. This issue could mitigate risks associated with financial instability and promote sustainable business practices. Corporate Sector—Companies with higher profitability are more likely to engage in sustainability reporting. Corporate leaders should recognize the business case for sustainability and integrate ESG considerations into their strategic decision-making processes. By aligning financial and non-financial performance goals, companies can enhance their long-term value creation and stakeholder trust.
Businesses must invest in capacity building and stakeholder engagement to improve the quality and comprehensiveness of sustainability disclosures. Engaging with investors, customers, employees, and communities can provide valuable insights into the ESG issues that matter most to stakeholders, guiding companies in prioritizing their reporting efforts. Investors and Financial Institutions—Investors play a critical role in driving corporate sustainability by allocating capital to companies demonstrating strong ESG performance. The findings underscore the importance of considering financial indicators alongside sustainability disclosures in investment decision-making processes. Investors should demand greater transparency and accountability from companies, encouraging them to disclose relevant ESG information that can inform investment decisions. Financial institutions, including banks and asset managers, should incorporate sustainability considerations into their risk assessment and lending practices. By assessing the sustainability performance of borrowers, financial institutions can better identify and manage ESG-related risks, ultimately contributing to more sustainable and resilient financial systems.
Civil Society and Non-Governmental Organizations (NGOs)—Civil society organizations and NGOs play a crucial role in advocating for corporate accountability and promoting sustainable development. They can leverage the findings of this study to advocate for more robust regulatory frameworks and corporate governance mechanisms that support sustainability reporting practices. NGOs can also collaborate with businesses to build capacity for sustainability reporting and facilitate multi-stakeholder dialogues on ESG issues. By fostering collaboration and knowledge-sharing, civil society organizations can help drive positive change towards more responsible and transparent business practices.
In conclusion, the policy implications of this study underscore the need for concerted efforts from governments, businesses, investors, and civil society to promote sustainability reporting and integrate ESG considerations into decision-making processes. By aligning financial incentives, regulatory frameworks, and stakeholder engagement strategies, stakeholders can work together to foster a more sustainable and inclusive economy in Vietnam.