Demystifying the influence of debt providers’ preferences on sustainability reporting: a firm-level meta-analytical inquiry

Over the past three decades, a plethora of academic research has examined the impact of debt capital providers, proxied by leverage, on firms’ sustainability reporting (SR) practices, indicating its relevance as a major determinant. Since the empirical literature remains inconclusive, we carried out the first comprehensive firm-level meta-analysis to reconcile the conflicting results from 112 studies involving 180 effect sizes across 32,953 firms spanning from 1989 to 2022. This provides a timely and up-to-date evaluation of the magnitude and nature of the engagement and influence of this significant stakeholder group on SR. Further, the study provides granular insights by dividing the overall effect on SR into three reporting dimensions—adoption, extent, and quality of reporting—to understand the impact of leverage on each and detail plausible reasons cited in the literature underpinning the positive or negative impact of debt providers on SR. The results show a positive significant impact of debt capital providers on SR, specifically, the adoption and extent of SR, but insignificant influence on SR quality, consistent with the findings of legitimacy theory. Debt capital providers’ sustainability information needs remain limited to the “act” and “extent” of disclosure and concern for SR has not percolated to “ask for quality,” indicative of a rather surface-level care for SR practices of firms. Regarding the strength of this stakeholder group and its funding power, greater activism, advocacy, and informational sensitivity are required to encourage firms to engage in meaningful SR practices. Subgroup analysis and meta-regression techniques were used to account for potential conceptual and study-based moderators. Significant discrepancies were observed due to differences in content of reported issues, type of firm, leverage proxies, the sample period, and publication quality. The study emphasizes the need for proactive measures among debt capital providers to counteract the limited positive impact of leverage on sustainability reporting. By identifying research gaps and exploring implications for debt providers and companies, this study highlights how ESG-sensitive lenders can potentially steer firms towards quality SR practices. It offers valuable insights that could inform policy changes, foster collaboration, and advance the practice of sustainability-oriented lending.