Abstract

This article investigates whether investors consider the reliability of companies’ sustainability information when determining the companies’ market value. Specifically, we examine market reactions (in terms of abnormal returns) to events that increase the reliability of companies’ sustainability information but do not provide markets with additional sustainability information. Controlling for competing effects, we regard companies’ additions to an internationally important sustainability index as such events and consider possible determinants for market reactions. Our results suggest that first, investors take into account the reliability of sustainability information when determining the market value of a company and second, the benefits of increased reliability of sustainability information vary cross-sectionally. More specifically, companies that carry higher risks for investors (e.g., higher systematic investment risk, higher financial leverage, and higher levels of opportunistic management behavior) react more strongly to an increase in the reliability of sustainability information. Finally, we show that the benefits of an increase in the reliability of sustainability information are higher in times of economic uncertainty (e.g., during economic downturns and generally high stock price volatilities)