This section comprises two subsections that review the literature and describe the hypothesis development, including disclosure of sustainability reporting, firm characteristics and disclosure of sustainability reporting.
2.1. Disclosure of Sustainability Reporting
Improving the transparency of disclosures exerts a positive effect on the firm in the capital market [
8,
9]. According to Beaver [
10], information asymmetry implies that the firm’s management has more private information than existing shareholders or potential investors, and complete and adequate information helps mitigate the adverse selection of poor risk investments and related moral hazards. The World Business Council for Sustainable Development defined corporate social responsibility as corporate commitment to ongoing compliance with ethics, contributing to economic development, and improving the life quality of employees and their families and the local community. Enterprises should engage in social ethical behavior and act responsibly toward stakeholders. The GRI formulated a globally recognized reporting framework, which gave sustainability reporting the same importance and value as financial reporting. Montiel and Delgado-Ceballos [
7] reviewed the literature and concluded that management scholars used different approaches to define, theorize, and measure the evolving field of corporate sustainability.
Sustainability reporting includes environmental aspects (such as raw materials, energy, water, biodiversity, air, suppliers, products and services, and transportation) as well as social aspects (such as labor practices, human rights, customer health and safety, respect for privacy, bribery and corruption, public policy competition, pricing, and corporate citizenship). The OECD Guidelines for Multinational Enterprises comprise 10 elements: concepts and principles, general policies, disclosures, employment and labor relations, environment, combating bribery, consumer interests, science and technology, competition, and taxation [
2]. Standard and Poor listed 500 companies in an Investor Responsibility Research Center Institute database; A1-Tuwaijri, Christensen, and Hughes [
11] used that database as a statistical sample and found statistically significant positive relationships among environmental performance, economic performance, and environmental information disclosure. Dhaliwal, Oliver, Albert, and Yong [
12] reported that firms with a high equity capital cost in the previous year had a high tendency to disclose a corporate social responsibility report; therefore, disclosing a corporate social responsibility report was related to lowered equity capital costs for that firm in the future. Rüdiger and Kühnen [
13] described legitimacy, stakeholders, signaling, and institutional theory as determinants of sustainability reporting. Alcaraz-Quiles, Navarro-Galera, and Ortiz-Rodríguez [
14] reported that socioeconomic and e-government factors are relevant to the disclosure of sustainability information by regional governments. Barkemeyer, Comyns, Figge, and Napolitano [
15] reported that the rhetoric in the chief executive officer statements of sustainability reports is indicative of impression management rather than accountability, despite the increasing standardization of sustainability reporting.
2.2. Firm Characteristics and Disclosure of Sustainability Reporting
Stakeholder theory is one of the major approaches to social, environmental, and sustainability management research, and scholars describe stakeholders as “those groups and individuals who can affect or be affected by the actions connected to value creation and trade”, or as “the individuals and groups who depend on the firm to achieve their personal goals and on whom the firm depends for its existence”. Stakeholder theory contributes to understanding stakeholders’ influences on organizations’ actions and how organizations respond to these influences. Stakeholders often seek to influence their organization’s philosophy and practice of sustainability reporting. Stakeholder engagement can be defined as a “trust-based collaboration between individuals and social institutions with different objectives that can only be achieved collaboratively”. Sustainable development can only be advanced by trust-based collaborative effort from both organizations and their stakeholders. Organizations are moving toward stakeholder engagement mainly to increase trust, transparency, and accountability, and provide more effective communication regarding sustainability reporting [
6,
16,
17,
18,
19]. Corporate governance is conceptualized as the creation and implementation of processes seeking to optimize returns to shareholders while satisfying the legitimate demands of stakeholders [
20]. This study used the firm’s characteristics, including corporate governance and business characteristics, to understand stakeholders’ interests. Corporate governance characteristics of a firm can contribute to stakeholders’ beliefs about who and what really is important at that firm; business characteristics, including the financial and operational activities of a firm, can influence stakeholders’ decisions [
20,
21].
This study focused on how firm characteristics influence the disclosure of sustainability reporting. Stakeholder interests can be inferred from firm characteristics such as corporate governance and business characteristics. The corporate governance characteristics comprise seven measurable variables: size of the board of directors, ratio of independent directors, audit committee, general manager acting as the concurrent chairman of board, percentage of director holdings, deviation in control and cash-flow rights, and pledged percentage of director shareholding. The business characteristics comprise six measurable variables: ratio of export income, percentage of foreign shareholders’ holdings, stock price per share, fixed asset staleness, firm growth, and firm debt ratio. Cheng [
22] examined the corporate governance and corporate social responsibility reports of Standard and Poor’s 500 companies and found that firms with enhanced corporate governance tend to disclose corporate social responsibility reports. Jo and Harjoto [
23] examined Standard and Poor’s 500 companies by multi-regression analysis, the sample consisted of 12,527 firm-year (2952 firms) observations from 1993 to 2004, and reported that corporate governance has a positive relationship with corporate social responsibility, which is related to sustainability reporting.
Klein [
24] observed that the size of the board of directors and the presence of an audit committee have positive relationships with management supervision; a firm with a large board of directors and an audit committee shows enhanced corporate governance and corporate social responsibility. Chen and Hsu [
25] found that a high proportion of independent directors indicated highly transparent information disclosure. Karamanou and Vafeas [
26] reported that an effective audit committee motivates the management to disclose financial information voluntarily; the effectiveness of corporate governance is related to the quality of information disclosure. Some accounting firms provide assurance services for corporate sustainability reports, which are related to the audit committee of the enterprise. Therefore, this study was based on the assumption that a firm will disclose sustainability information if it has a large board of directors, a high ratio of independent directors, and an audit committee. Core, Holthausen, and Larcker [
27], and Liao, Lee, and Wu [
28] reported that a general manager acting as the concurrent board chairman weakens the supervisory function of the board of directors, thus weakening corporate governance. Eng and Mak [
29] considered companies in Singapore and found that the percentage of director holdings is negatively correlated with information transparency. La Porta, Lopez-Silanes, Schleifer, and Vishny [
30], and Leuz, Nanda, and Wysocki [
31] reported that a considerable deviation in control and cash-flow rights causes controlling shareholders to engage in harmful behavior toward other shareholders, which implies that poor corporate governance has a negative effect on information disclosure. Chen and Hsu [
25] found that a considerable deviation in control and cash-flow rights leads to a negative effect on information disclosure. Increasing the pledged percentage of director shareholding results in substantially decreased director ownership; the deviation in control and cash-flow rights causes severe agency problems of poor corporate governance that lead to a negative effect on information disclosure [
32,
33]. Therefore, this study was based on the assumption that sustainability reporting might be impaired by any of the following problems: a general manager acting as the concurrent chairman of board, high proportion of director holdings, considerable deviation in control and cash-flow rights, and high pledged percentage of director shareholding.
Global enterprises with a high ratio of export income or a high percentage of foreign shareholders are under pressure to conduct corporate social responsibility activities that deter international competition and find new overseas development opportunities; therefore, such firms disclose considerable information regarding corporate social responsibility. Few studies have discussed the relevance of corporate social responsibility disclosures to firm value. Because of the differences in sample selection, variable measurement, research methods, and research periods, scholars have argued about the shift in focus and social impact hypotheses; therefore, evidence for the relevance of corporate social responsibility disclosure to firm value is inconclusive. A party interested in a firm with substantial growth opportunities or long-term fixed asset staleness requires the firm to provide more activities and a disclosure of social responsibility to secure its interests and manage its risks. Creditors play a supervisory role in firms that borrow and thus require extensive information disclosure to protect their claims [
12,
23,
34,
35,
36]. Therefore, this study was based on the assumption that a high ratio of export income, high percentage of foreign shareholders’ holdings, long-term fixed asset staleness, considerable firm growth, and high firm debt ratio cause a firm to disclose extensive information about sustainability. The stock price per share of a firm has a relationship with the disclosure of sustainability reporting.
Therefore, the following two hypotheses were proposed:
Hypothesis 1. The corporate governance characteristics have positive or negative relationships with the disclosure of sustainability reporting.
Hypothesis 2. The business characteristics have positive or negative relationships with the disclosure of sustainability reporting.