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Abstract Collaborations with nonprofits are an avenue for firms to tackle social and environmental issues, and their disclosure is one way through which firms can inform stakeholders of the sustainability of their operations. This paper investigates their signaling function, disentangling it from their transformative role in spurring sustainable operational changes. Econometric analyses on collaborations reported by 118 Italian listed firms in their non‐financial disclosures in 2017–2019 confirm their signaling function. Most reported collaborations do not imply firms' operational engagements. Firms' propensity to collaborate is higher when their activities are less observable, institutional monitoring is weak, and alternative signaling mechanisms are absent. However, signaling determinants are weaker when collaborations involve firm‐level operational engagements. The study offers exploratory evidence that firms disclose collaborations with nonprofits as signals of sustainability. It offers insights on their dual role, showing that collaborations which spur sustainable operational changes are less likely to be employed as signals.
Garrone et al. (Tue,) studied this question.