Unlocking the Power of Reporting: Exploring the Link between Voluntary Sustainability Reporting, Customer Behavior, and Firm Value

Voluntary sustainability reporting is becoming more common, as evidenced by the hundreds of organizations that have adopted the Global Reporting Initiative (GRI) standards or similar reporting frameworks within the last decade. This research aims to explore the influence of voluntary sustainability reporting on customer behavior and firm value. Drawing on signaling theory, this paper developed and empirically tested four hypotheses to understand the relationships between the study variables. We collected actual data from the petrochemical companies in Saudi Arabia from 2012 to 2022. Data were analyzed using a fixed-effect panel model. The findings revealed that, in general, sustainability reporting has a negative impact on firm value and customer behavior. Nonetheless, the association between sustainability reporting, firm value, and customer behavior became positive over time. We conclude that sustainability reporting is a costly signal at first but that it ultimately increases firm value as businesses improve their ability to inform stakeholders about sustainability activities and as investors become more adept at assessing report quality. This paper offers several theoretical and managerial implications.