The Impact of Sustainability Reporting on Manufacturer Market and Operations Performance: Five Long-Term Event Studies from Signaling and Stakeholder Perspectives

Sustainability reporting (SR) is an important source of voluntary disclosure of sustainability information. SR can play a critical role in manufacturing firms' disclosure of their practices and strategies concerning their impacts on the natural environment and wider society, as well as how they run their business beyond mandatory disclosure. With a focus on market performance, previous studies demonstrate that SR can enhance market and financial outcomes, where a company's superiority is signaled to external stakeholders such as investors and customers. However, there is limited understanding of its broader impact on production and operations considering both internal and external stakeholders. This research conducts five event studies and regression analyses on the market and efficiency reactions to SR, using the Global Reporting Initiative (GRI) reporting data from 1999 to 2020 that comprises 1254 firm-year observations of U.S. manufacturing firms. Our event study results indicate that SR leads to a time-lagged positive effect on performance metrics such as return on assets (ROA), labor productivity, manufacturing cost efficiency, Tobin's q, and market value, attributed to the costly signaling effect. Our regression analyses suggest that signal observability factors can amplify the effect of SR on certain performance. The findings suggest that executives should prioritize internal stakeholders, such as employees, and sustainable operations when investing in SR. While SR is originally a voluntary disclosure directed toward external stakeholders, it may also signal internal stakeholders and drive responses related to operations and productivity, constituting a reverse signaling process. This research addresses a gap in understanding the role of SR in driving financial performance and productivity within the integrated framework of stakeholder theory and signaling theory and provides managerial implications for firms' operations and production.