Accounting sustainability, disclosure quality, business ethics, and corporate reputation: evidence from Thai listed firms.

AuthorKongpunya, Panisara
PositionReport - Survey
  1. INTRODUCTION

    Nowadays, corporate reputation becomes an important outcome of providing best practices and activities in doing businesses within the turbulent and uncertain markets and environments. Several best practices and activities have been implemented to help firms achieve competitive advantage, enhance performance, gain reputation, and promote survival. In the accounting phenomenon, accounting sustainability is the best practice in preparing firms' financial statements and reports in the competitive situations. It helps enhance the quality, reliability, and accessibility of financial information reported which is relevant to the organizational objective of sustainability. Accordingly, accounting sustainability is a vehicle for levering the changes in corporate attitudes and actions that are necessary to move towards the different kinds of organizational decision making consistent with social and ecological sustainability (Ball, 2004). Moreover, it represents the process for information collection and communication to promote internal decision making to implement corporate sustainability and the result of the demand from managers to position the firms in society and the markets as well as to communicate achievements (Burritt and Schaltegger, 2010). Here, accounting sustainability plays a significant role in explaining, driving and determining business results and outcomes.

    Essentially, accounting sustainability is proposed to become an antecedent of disclosure quality and corporate reputation. It consists of transparency, inclusiveness and auditability. First, transparency is the full disclosure of the processes, procedures and assumptions in financial report preparation (Lamberton, 2005). Second, inclusiveness refers to the reporting organization to systematically engage its stakeholders to help focus and continually enhance the quality of it financial reports (Lamberton, 2005). Third, auditability is the reported data and information that is recorded, complied, analyzed, and disclosed in a way that would enable internal auditors or external assurance providers to attest to its reliability (Lamberton, 2005). Also, disclosure quality is the presentation of firms' financial information and other related information through the process of providing information about items in the financial statements, including footnotes, supplementary schedules, or other means (Shaw, 2003), and corporate reputation is the overall evaluation of the extent to which firms are substantially good or bad (Keh and Xie, 2009). Four-item scale was used to evaluate the degree to which firms provide the credibility and usefulness of financial information. To increase the benefits and advantages of the relationships among accounting sustainability, disclosure quality and corporate reputation, business ethics is proposed to become the moderating variable of the study and it is the set of established rules, standards, or principles for morally right behavioral conduct in specific situations and in specific cultures when applied to business activities and operations (Stajkovic and Luthans, 1997). Then, the interactions of the aforementioned variables are investigated in this study.

    To clearly verify the relationships among accounting sustainability, disclosure quality, business ethics, and corporate reputation, this study aims at investigating the effects of accounting sustainability on corporate reputation of Thai listed firms via disclosure quality as a mediator and business ethics on a moderator. Accounting sustainability includes transparency, inclusiveness and auditability. Here, 114 Thai listed firms are the sample of the study. In this study, the key research questions are: (1) how transparency has a significant effect on disclosure quality and corporate reputation, (2) how inclusiveness has an important impact on disclosure quality and corporate reputation, (3) how auditability has a potential influence on disclosure quality and corporate reputation, (4) how disclosure quality is significantly related to corporate reputation, (5) whether business ethics moderates the transparency-disclosure quality relationships and the transparency-corporate reputation relationships, (6) whether business ethics moderates the inclusiveness-disclosure quality relationships and the inclusiveness-corporate reputation relationships, (7) whether business ethics moderates the auditability-disclosure quality relationships and the auditability-corporate reputation relationships, (8) whether business ethics moderates the disclosure quality-corporate reputation relationships, (9) whether the aforementioned relationships are positive, (10) whether disclosure quality is a mediator of the relationships, and (11) whether business ethics is a moderator of the relationships.

    This study is outlined as follows. The first section reviews existing significant literature in the areas and streams of accounting sustainability, disclosure quality, business ethics, and corporate reputation, links between the concepts of the aforementioned variables, and develops the key research hypotheses of those relationships. The second explicitly details research methods, including data collection, measurements, and statistics used. The third gives the results of the analysis and the corresponding discussion. The final summarizes the findings of the study, points out both theoretical and managerial contributions, and presents suggestions for further research and the limitations of the study.

  2. ACCOUNTING SUSTAINABILITY, DISCLOSURE QUALITY, BUSINESS ETHICS, AND CORPORATE REPUTATION

    In this study, accounting sustainability is a key determinant of driving corporate reputation through mediating effects of disclosure quality and moderating impacts of business ethics. Accounting sustainability (transparency, inclusiveness and auditability) is the independent variable, disclosure quality is the mediating variable, business ethics is the moderating variable, and corporate reputation is the dependent variable of the study. The relationships are systematically investigated. Thus, the conceptual, linkage, and research model presents the associations among accounting sustainability, disclosure quality, business ethics, and corporate reputation as shown in Figure 1.

    [FIGURE 1 OMITTED]

    2.1 Transparency

    Transparency is the first dimension of accounting sustainability and is the independent variable of the study. It refers to the full disclosure of the processes, procedures and assumptions in financial report preparation (Lamberton, 2005). It explicitly creates a new ideal of organizational self-control and self-observation and potentially involves a sorting of the complexity of organizational reality and its reduction to a few simple indicators (Roberts, 2009). It has a significant positive influence on disclosure quality via the assessments of the completeness, clarity and timeliness of firms' disclosure policies of financial reports. Firms with more transparency tend to provide greater disclosure and offer newer objects of disclosure. They are likely to increase their investors' confidence. In the accounting literature, transparency reduces the asymmetric information between the firm and the market, increases the liquidity of high-quality assets, enables the firm's shareholders to sell, and substitutes the assets more easily (Burkhardt and Strausz, 2009). Ultimately, it leads to an increase in the firm's investment value in the turbulent and uncertain markets and environments. Thus, transparent financial reports are positively related to corporate disclosure quality and reputation.

    Mainly, transparency becomes a requirement of firms' presenting financial statement reports. It enhances valuable information flows, promotes market discipline and leads to more efficient allocation of assets and resources (Billings and Capie, 2009). Firms with higher transparency are likely to allow more effective operation of market discipline by the providers of capital, depositors and other market counterparties. Thus, more transparency in financial reporting has an influence on its greater uniformity. Moreover, it helps stakeholders use reported earnings and financial statements to assess cash flow prospects, evaluate management's performance, estimate earnings power, predict future earnings, assess risks, and confirm, change or reject earlier predictions and assessments (Behn et al., 2010). Accordingly, transparency is likely to have an important positive impact on firms' disclosure quality and reputation. Therefore, the aforementioned relationships are hypothesized as shown below.

    Hypothesis 1a: The greater the transparency is, the more likely that firms will provide higher disclosure quality.

    Hypothesis 1b: The greater the transparency is, the more likely that firms will achieve higher corporate reputation.

    2.2 Inclusiveness

    Inclusiveness is the second dimension of accounting sustainability and is the independent variable of the study. It is defined as the reporting organization to systematically engage its stakeholders to help focus and continually enhance the quality of it financial reports (Lamberton, 2005). It outstandingly ensures the quality, reliability, and accessibility of financial information reported relevant to the organizational objective of sustainability. It also enables the preparers of financial reports to discharge the accountability to the users. Moreover, inclusiveness refers to an ability of firms to generate financial and other evidences bearing on multiple possible standards-setting solutions (McDaniel and Hand, 1996). Besides, it provides the information on different disclosure and recognition options, and allows the uniformity of policy across different users within or across countries. Firms with greater inclusiveness tend to achieve more disclosure quality and gain superior corporate reputation in the competitive markets and environments. Hence, inclusiveness of...

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