Journal of Cleaner Production 143 (2017) 27e39

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Journal of Cleaner Production

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Determinants of sustainability reporting and its impact on rm value:

Evidence from the emerging market of Turkey
Cemil Kuzey a, Ali Uyar b, *
a
Murray State University, Arthur J, Bauernfeind College of Business, Computer Science/Information Systems, Murray, KY 42071, United States
b
College of Business Administration, American University of the Middle East, Egaila, Kuwait Block 3, Building 1, Egaila, 15453, Kuwait

a r t i c l e i n f o a b s t r a c t

Article history: The purpose of this study is to investigate the factors that impact (1) Global Reporting Initiative-based
Received 30 June 2016 sustainability reporting, (2) the adoption of assurance statements in sustainability reports, and (3) the
Received in revised form application levels of sustainability reports. Moreover, (4) the paper examines whether sustainability
14 December 2016
reporting is value relevant or not based upon the sample provided by 297 Turkish publicly traded
Accepted 27 December 2016
Available online 30 December 2016
companies at the Borsa Istanbul. The ndings revealed a growing awareness of Global Reporting
Initiative -based sustainability reporting among the investigated corporations, and an improving trend in
report quality; however, having sustainability reports assured by an independent verier is not wide-
Keywords:
Sustainability
spread among them. Using the basis of ten formulated hypotheses, the empirical evidence yielded sig-
Report nicant results, which explain the driving factors behind sustainability reporting. Moreover, the results
GRI conrmed that sustainability reporting is value relevant.
Assurance 2016 Elsevier Ltd. All rights reserved.
Application level
Firm value

1. Introduction
Sustainability reporting has become popular, particularly in the
last decade, emerging as a result of the evolution of environmental
and corporate social responsibility reports (Jones et al., 2016; Uyar,
2016). Worldwide initiatives (i.e. Global Reporting Initiative and
United Nations Global Compact) to bring the sustainability issue to
the forefront have produced favorable results. As a result, there has
been a growing awareness and propensity for issuing standalone
sustainability reports, albeit slow. Contrary to previously prepared
environmental and social responsibility reports, sustainability re-
ports are largely prepared in conjunction with the best known
framework, Global Reporting Initiative (GRI) (GRI, 2013). GRI has
been very successful in terms of its adoption rate, comprehen-
siveness, prestige, and visibility since inception in 1999 (Brown
et al., 2009). Before this framework was developed, the so-called
environmental, social responsibility or sustainability report for-
mats used by corporations were not based upon a globally - agreed-
upon framework; thus the formats of reports were diverse, with no
uniformity or comparability. Thus, GRI provided a common ground
* Corresponding author.
E-mail addresses: cemilkuzey@gmail.com (C. Kuzey), aliuyar@hotmail.com
(A. Uyar).
for sustainability reporting (Ortiz and Marn, 2014; Watts, 2015).
Research studies indicate that it is now the most commonly used
framework among companies in many countries (KPMG, 2013;
Chen et al., 2015; Michelon et al., 2015). In addition, GRI provides
rich resources to guide its users during the implementation pro-
cess. For example, it publishes sector-specic supplements that
assist rms in specic industries to prepare their sustainability
reports, since peculiarities exist within every sector. Lock and Seele
(2016) found that standardization by means of GRI framework
improves the quality of corporate social responsibility reports.
Moreover, the external assurance of sustainability reports by in-
dependent veriers, such as accounting or non-accounting rms, is
gaining momentum among sustainability reporters.
This study is differentiated from prior studies by the inclusion of
three dimensions of sustainability reports, such that it investigates
the adoption of the GRI framework, the adoption of assurance
statements in sustainability reports, and the level of GRI applica-
tion. Prior studies focused on the various distinct dimensions of
sustainability reports such as GRI framework adoption (Liu and
Anbumozhi, 2009), independent assurance (Kolk and Perego,
2010; Perego and Kolk, 2012; Mock et al., 2013; Ruhnke and
Gabriel, 2013; Branco et al., 2014; Gomes et al., 2015), and the
GRI framework adoption and application level (Legendre and
Coderre, 2013). This study obtains this objective through using a

http://dx.doi.org/10.1016/j.jclepro.2016.12.153
0959-6526/ 2016 Elsevier Ltd. All rights reserved.
28 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39
single set of data investigating the drivers of sustainability reports,
independent assurance statements, and application levels. This
paper also attempts to complement past studies by examining the
signal that publication of a standalone sustainability report con-
veys, similar to Guidry and Patten (2010) and Berthelot et al. (2012),
rather than the integration of social and/or environmental disclo-
sures presented in corporate annual reports. This voluntary in-
vestment can constitute a signal for investors (Berthelot et al., 2012)
because the presentation of sustainability reports requires more
effort as well as nancial and human resource commitments than
simply disclosing information in an annual report. The growth in
socially responsible investments worldwide, capital providers, and
other stakeholders encourage corporations to become more
accountable for sustainability issues (Braam et al., 2016).
Our paper also extends the prior value relevance of sustain-
ability research in the emerging market context, since most of the
prior studies have investigated the issue in developed markets
such as in the U.S. (Lo and Sheu, 2007; Guidry and Patten, 2010),
in Canada (Berthelot et al., 2012), and in Australia (Bachoo et al.,
2013). This study is among the rst to explore the drivers of
sustainability reporting, assurance statements, and report appli-
cation level in Turkish corporations. Currently, the level of sus-
tainability reporting (16.8%) and GRI-based sustainability
reporting (15.2%) is not high among Turkish companies (Table 2).
In terms of assurance and the application levels of the reports, the
existing situation is not satisfactory; the rate of assurance on GRI-
based sustainability reports is 28.9%; only a minority of the re-
ports have achieved high application levels (A or A). Thus, this
study aims at arousing interest among corporations in Turkey and
also in other countries which do not sufciently consider sus-
tainability reporting issues.
Moreover, Sustainability reports provide a different type of in-
formation than nancial reports. They indicate the capability of a
rms long-term value creation by considering its economic, social,
and environmental performance. Schadewitz and Niskala (2010)
argue that the association between sustainability reporting and
rm value is still inconclusive. A limited number of existing studies
regarding the value-enhancing role of sustainability reporting have
been carried out, mostly in developed countries such as the U.S.
(Herremans et al., 1993; Konar and Cohen, 2001; Lo and Sheu, 2007;
Guidry and Patten, 2010), Canada (Berthelot et al., 2012), and
Australia (Bachoo et al., 2013). Thus, this study extends the relevant
literature and conrms that sustainability reporting is value-
relevant in the emerging market setting.
The scarcity of drivers of assurance on sustainability reports
has been voiced by several researchers (Simnett et al., 2009: De
Beelde and Tuybens, 2015). Unlike the mandatory audit of nan-
cial reports, the assurance of sustainability reports is largely
voluntary: thus, it draws less attention at present. However, given
the positive views of assured companies (Park and Brorson, 2005)
with the empirical evidence regarding the quality-enhancing role
of verication externally (Moroney et al., 2012), assurance im-
proves the credibility of sustainability reports, since they include
technical information about environmental effects, waste recy-
cling, energy consumption, and so on. A cross-country study has
also proved the positive role of additional voluntary assurance
statements upon the extent of sustainability disclosure (Faisal
et al., 2012). Jones and Solomon (2010) assert that the need for
sustainability report assurance is particularly important due to its
voluntary and unregulated nature which might allow rms to
pursue their own goals and interests such as impression man-
agement. Moreover, we argue that the credibility of information
on sustainability reports plays a positive role in providing assur-
ance since the reports involve many technical environmental and
social indicators; thus, they should be veriable in the case of
independent investigation. The statements generally assured by
Big-4 auditing companies (i.e. Deloitte & Touche, KPMG, Ernst &
Young; PricewaterhouseCoopers) (Manetti and Becatti, 2009).
Simnett et al. (2009) assert that these auditing rms are less likely
to behave opportunistically or myopically during the assurance
process due to not wishing to harm their reputations. In sum, a
rm has to prepare a high quality sustainability report before
making an assurance agreement.
Prior studies have mostly focused on developed countries or on
a global scale. It might not be possible to generalize the ndings of
these studies for emerging countries, as their underlying legal or
institutional background differs from those in developed countries.
For example, developing countries have wider gaps in enforcement
in terms of environmental protection laws or human rights
compared to developed countries (Graham and Woods, 2006;
Shum et al., 2009). Moreover, stakeholder (i.e. civil organizations,
media, consumers, activists) inuence in emerging countries might
be less inuential than in developed ones. Therefore, we assert that
emerging market studies should contribute to this growing body of
literature.
The remainder of the paper is organized as follows. Section 2
develops the hypotheses, followed by the explanation of research
methodology in Section 3. Then, Sections 4 and 5 present the
ndings of the study and the discussion, respectively. Finally, the
conclusion is provided, along with the implications and limitations
of the paper.
2. Literature review and hypotheses
Several studies provided evidence that sustainability reporting
via GRI alleviates information asymmetry that exists between
managers and investors while enhancing rm value (Lo and Sheu,
2007; Schadewitz and Niskala, 2010) and performance (Ameer
and Othman, 2012). Disclosing sustainability-related issues to
stakeholders enhances the accountability and transparency of rm
operations, which assist investors to make proper evaluations
(Nobanee and Ellili, 2016). Moreover, this type of reporting pro-
vides additional benets such as enhancing entity image,
strengthening community relations, and legitimating rm activities
(Kl and Uyar, 2014; Kili et al., 2015).
Among the theories pertaining to sustainability reporting, the
dominant ones are the agency, legitimacy, stakeholder, and
signaling theories (Reverte, 2009; Amran and Haniffa, 2011; Hahn
and Khnen, 2013; Ruhnke and Gabriel, 2013). Fama and Jensen
(1983) state that agency costs appear due to the conicts of in-
terests and information asymmetry between insiders and out-
siders; hence, sustainability reporting plays a signicant role in
reducing this asymmetry. According to Deegan (2002), a company
needs to gain legitimacy in the sense of a social license to operate
to reach the necessary resources to carry out its activities; thus,
sustainability reports are the tools of legitimizing a business, and
demonstrate that it is staying within the acceptable boundaries of
society. Stakeholder theory posits that a business organization
needs to maintain good relations with all stakeholders, rather than
merely with its shareholders, and must satisfy their informational
needs through sustainability reports (Reverte, 2009; Loureno and
Branco, 2013). Drawing upon the signaling theory, a rm chooses
sustainability information in order to send messages as to how it is
performing in terms of economic, social, and environmental per-
formance (Spence, 2002; Ruhnke and Gabriel, 2013). In sum,
Cormier et al. (2005) argue that sustainability reporting practices
are a complex phenomenon that cannot be explained with one
single theory.
As non-nancial reporting has evolved, new issues have sur-
faced in the meantime, such as the quality and credibility of reports
 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39
(Guidry and Patten, 2010; Bachoo et al., 2013; Michelon et al., 2015;
Braam et al., 2016). The credibility discussion has led to the
development of a new market called third-party assurance of sus-
tainability reports. Perego and Kolk (2012) classify these assurance
providers into four, namely: accounting rms, specialists (both
broader and specialist consultants), certication bodies and others
(including academic institutions, non-governmental organizations,
and stakeholder panels), and individual auditors. However, Sierra
et al. found that this market is dominated by Big-4 accounting
rms, with few other non-accounting service providers. Pugrath
et al. (2011) and Park and Brorson (2005) provided empirical evi-
dence that verication sustainability reports made by professional
accountants enhances their credibility. This voluntary assurance
movement, even though progressing slowly, has triggered the
development of literature based upon the external assurance of
these sustainability reports. Research studies investigating the
drivers of independent assurance statements within sustainability
reports reported interesting results. For example, Kolk and Perego
(2010) carried out a cross-country analysis on the determinants
of the adoption of sustainability assurance statements by sampling
Fortune Global 250 companies. They found that rms domiciled in
countries that are more stakeholder-oriented have powerful insti-
tutional mechanisms, while those that experience a weaker
governance regime are more likely to adopt a sustainability assur-
ance statement. On the other hand, some studies examined the rm
level factors of external assurance. They found that rm size
(Loureno and Branco, 2013; Sierra et al., 2013; Branco et al., 2014;
De Beelde and Tuybens, 2015), leverage (Sierra et al., 2013; Branco
et al., 2014), protability (Loureno and Branco, 2013; Sierra et al.,
2013; Branco et al., 2014), listing status (Loureno and Branco,
2013; Branco et al., 2014), industrial afliation (Branco et al.,
2014), ownership structure (Loureno and Branco, 2013), board
characteristics (Amran et al., 2014; Shamil et al., 2014), and media
visibility (De Beelde and Tuybens, 2015) are important de-
terminants of adoption of external assurance. As well, other studies
have investigated other aspects of the issue such as: the critical
analyses of assurance statements (ODwyer and Owen, 2005), the
value relevance of assurance statements (Moroney et al., 2012), the
impediments to sustainability report assurance (Darus et al., 2014),
and the impact of governance factors on sustainability report
assurance (Peters and Romi, 2014).
Another issue is the quality of information embedded in sus-
tainability reports; as evidenced by (Guidry and Patten, 2010),
quality matters in terms of market reactions. Some researchers
measured the quality of reports against the achievement of higher
application levels prescribed in GRI guidelines which ranged be-
tween C (the lowest) and A (the highest) (Legendre and Coderre,
2013; Ruhnke and Gabriel, 2013), while others evaluated it using
the content analysis of certain indicators (Bachoo et al., 2013;
Zorio et al., 2013; Michelon et al., 2015). Moreover, Lock and
Seele (2016) investigated the credibility of CSR reports by utiliz-
ing four constructs (i.e. understandability, truth, sincerity, and
truthfulness) and proved that a high application level and GRI-
based reporting affect the credibility of reports positively. How-
ever, Bachoo et al. (2013) argue that measuring the quality of
reports by quantifying the notional information disclosure is
imperfect, since it is prone to the subjectivity of the context as
well as the measurer.
We assume that there are possible drivers behind sustainability
reporting, achieving higher application levels, and assuring sus-
tainability reports. Legendre and Coderre (2013) draws attention to
the need for further studies analyzing the determinants for the
adoption of GRI application levels. Furthermore, the issue of
whether sustainability reporting is value-relevant or not is worth
investigating. Thus, we have formulated several hypotheses in the
29
following sub-sections to determine which factors might have a
signicant impact on sustainability reporting as well as whether
they have value relevance based on prior studies (Lo and Sheu,
2007; Reverte, 2009; Kolk and Perego, 2010; Legendre and
Coderre, 2013; Loureno and Branco, 2013; Ruhnke and Gabriel,
2013; Branco et al., 2014; Kansal et al., 2014). The factors that we
investigate should be considered as internal organizational factors
rather than external ones.
2.1. Firm size
Prior studies have investigated the impact of rm size on sus-
tainability reporting for several reasons (Adams, 2002; Artiach
et al., 2010; Skouloudis et al., 2014; Shamil et al., 2014; Kansal
et al., 2014; Nazari et al., 2015). They refer extensively to legiti-
macy theory (Kolk and Perego, 2010), asserting that larger rms are
under more public scrutiny, need more legitimacy, have a higher
amount of resources (Liu and Anbumozhi, 2009; Loureno and
Branco, 2013; Kansal et al., 2014), and incur lower reporting costs
(Jennifer Ho and Taylor, 2007). Some studies found a signicant
positive association between rm size and sustainability reporting
(Liu and Anbumozhi, 2009; Artiach et al., 2010; Reverte, 2009;
Loureno and Branco, 2013), as well as between rm size and
assurance statements (Sierra et al., 2013; Branco et al., 2014).
Moreover, Legendre and Coderre (2013) argue that as the result of
stakeholder pressure, larger corporations are expected to publish
higher quality sustainability reports and adopt higher-level GRI
application levels to legitimate their operations. Based upon the
same theoretical ground, we posit that larger rms are more likely
to publish sustainability reports with high application levels, and to
have them externally assured in order to avoid legitimacy issues.
Thus, we formulate the following hypotheses:
H1. Firm size has a signicant positive association with publishing
GRI-based sustainability reports.
H1a. Firm size has a signicant positive association with
achieving higher application levels of GRI-based sustainability
reports.
H1b. Firm size has a signicant positive association with the
external assurance of GRI-based sustainability reports from an in-
dependent verier.
2.2. Industry
The relationship between industrial afliation and sustainability
reporting practices is generally discussed in the literature on
legitimacy grounds (Legendre and Coderre, 2013; Burgwal and
Vieira, 2014; Braam et al., 2016). Prior literature suggests a strong
industry inuence upon sustainability reporting (Skouloudis et al.,
2014). Liu and Anbumozhi (2009) argue that environment-
sensitive industries are inclined to disclose environmental issues
since they are likely to harm the environment, and as such are
prone to stricter regulation. Legendre and Coderre (2013) also point
out that rms operating in high-risk industries are more inclined to
publish high quality sustainability information under pressure from
their stakeholders. Braam et al. (2016) conclude that environment-
sensitive industries employ external assurance on their sustain-
ability reports to enhance their credibility and to strengthen their
own legitimacy. Prior studies have provided evidence that industry
afliation has a signicant impact on sustainability reporting
(Brammer and Pavelin, 2008; Reverte, 2009; Kansal et al., 2014;
Shamil et al., 2014), although there are exceptions (Nazari et al.,
2015). Furthermore, Legendre and Coderre (2013) and Branco
30 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39
et al. (2014) proved that GRI application level and independent
assurance, respectively, are positively associated with industry
afliation. Thus, we formulate the following hypotheses:
H2. Operating in high-risk industries has a signicant positive
association with publishing GRI-based sustainability reports.
H2a. Operating in high-risk industries has a signicant positive
association with achieving higher application levels of GRI-based
sustainability reports.
H2b. Operating in high-risk industries has a signicant positive
association with the external assurance of GRI-based sustainability
reports from an independent verier.
2.3. Leverage
Kansal et al. (2014) contend that the relationship between sus-
tainability reporting and risk is not as widely explored in research
studies as is their relationship to rm size and protability. The
links between sustainability reporting practices and leverage is
largely discussed on the ground of agency theory (Jennifer Ho and
Taylor, 2007; Reverte, 2009). Jensen and Meckling (1976) argue that
highly leveraged companies disclose more voluntary information in
order to reduce agency costs and, as a result, their capital costs.
Moreover, as one of the most important stakeholders, creditors
have concerns regarding the repayment of loans and interest. This
necessitates the economic sustainability of rms, while requiring
the avoidance of sustainability-related risks. Thus, rms are ex-
pected to take the concerns of this class of stakeholders into
consideration, and make related disclosures in order to alleviate
their concerns. However, this theoretical linkage is not supported
by empirical evidence (Liu and Anbumozhi, 2009; Reverte, 2009;
Artiach et al., 2010; Loureno and Branco, 2013; Kansal et al.,
2014; Shamil et al., 2014; Nazari et al., 2015). Branco et al. (2014)
and Sierra et al. (2013) proved the existence of a negative associa-
tion between assurance statements and leverage; however, De
Beelde and Tuybens (2015) found supportive evidence regarding
the positive links between these two variables. Based on the
theoretical approach provided above, we formulate the following
hypotheses:
H3. Leverage has a signicant positive association with publishing
GRI-based sustainability reports.
H3a. Leverage has a signicant positive association with
achieving higher application levels of GRI-based sustainability
reports.
H3b. Leverage has a signicant positive association with the
external assurance of GRI-based sustainability reports from an in-
dependent verier.
2.4. Protability
Protability could be a signicant determinant of sustainability
reporting, since protable companies are likely to disclose sus-
tainability information in order to legitimize their activities
(Legendre and Coderre, 2013). In addition, a rms economic per-
formance might not be sustainable if it ignores the public interest in
sustainability issues. According to Alsaeed (2006), the management
of a protable rm may wish to disclose more information to the
public in order to promote a positive impression. However, Reverte
(2009) argues that the most obvious and explicit connection be-
tween sustainability reporting practices and protability can be
established on the ground of the availability of economic resources.
In an earlier paper, Waddock and Graves (1997) established this
link on the basis of resource availability theory and proved it.
Ruhnke and Gabriel (2013) and Simnett et al. (2009) also support
this approach and posit that protable companies have a higher
nancial capacity for costly sustainability investments and external
assurance statements in sustainability reports. Another reason for
the positive association between protability and sustainability
reporting could be the fact that protable rms are closely scruti-
nized and even more closely followed by nancial intermediaries
(Aksu and Kosedag, 2006). Many studies found a positive associa-
tion between protability and sustainability reporting (Waddock
and Graves, 1997; Liu and Anbumozhi, 2009; Artiach et al., 2010;
Loureno and Branco, 2013; Kansal et al., 2014), while some
found no signicant association (Reverte, 2009), and others found a
negative association (Jennifer Ho and Taylor, 2007); thus, the as-
sociation is unclear. Legendre and Coderre (2013) provided
empirical evidence that a rms adoption of the GRI framework is
positively associated with its protability; however, they could not
prove the association between the GRI application level and prof-
itability. Regarding the association between assurance statements
and protability, Branco et al. (2014) provided evidence in the
positive direction. Supporting Reverte (2009), we argue that a rm
requires sufcient nancial resources to be able to make a
commitment to sustainability reporting with a high application
level, as well as to its external assurance. Thus, we formulate the
following hypotheses:
H4. Protability has a signicant positive association with pub-
lishing GRI-based sustainability reports.
H4a. Protability has a signicant positive association with
achieving higher application levels of GRI-based sustainability
reports.
H4b. Protability has a signicant positive association with the
external assurance of GRI-based sustainability reports from an in-
dependent verier.
2.5. Liquidity
Contrary to frequently used variables such as rm size and
protability, liquidity is rarely incorporated in sustainability
reporting studies. Jennifer Ho and Taylor (2007) explain the sus-
tainability reporting practices of corporations on the basis of
signaling theory, such that liquid companies are more likely to
include sustainability disclosures to meet short-term nancial ob-
ligations. Moreover, the use of sustainability reports may be an
expression of the condence by management in a companys sol-
vency and future prospects (Oyelere et al., 2003). However, this
hypothesis has not been supported by the empirical ndings
(Jennifer Ho and Taylor, 2007; Shen and Chang, 2009) except Bakar
et al. (2011). Based upon the theoretical approach, we argue that
rms with a high liquidity ratio are more likely to publish sus-
tainability reports with high application levels and to have them
externally assured. Thus, we formulate the following hypotheses:
H5. Liquidity has a signicant positive association with publishing
GRI-based sustainability reports.
H5a. Liquidity has a signicant positive association with
achieving higher application levels of GRI-based sustainability
reports.
H5b. Liquidity has a signicant positive association with the
external assurance of GRI-based sustainability reports from an in-
dependent verier.
 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39
2.6. Free cash ow
Free cash ow is another variable that has not been considered in
prior sustainability studies except, to the knowledge of the authors,
by Artiach et al. (2010). Free cash ow is an indicator of a rms
ability to generate cash ow from its operations, and is a measure of
cash holdings after meeting certain obligations, such as dividends
and capital expenditure. Thus, the amount of cash ow demon-
strates the nancial capacity of a rm to meet its stakeholders
expectations. In this regard, it enables a rm to commit some
amount of nancial resources in order to prepare a high quality
sustainability report, and receive assurance service. Moreover, Aksu
and Kosedag (2006) predicted a positive relationship between free
cash ow, transparency and disclosure, since rms tend to mitigate
the negative impact of excess cash holding on equity value. The
recent study of Jose
e Ledoux et al. (2014) asserted that rms with a
higher free cash ow have more capacity to support proprietary
costs. Even though this relationship was not proved by Artiach et al.

e Ledoux et al. (2014). Based upon
(2010), it was later proved by Jose
the discussion provided above, we argue that a rm needs to have a
sufcient amount of free cash ow in order to be able to commit to
sustainability reporting with a high application level, and to its
external assurance. Thus, we formulate the following hypotheses:
H6. Free cash ow has a signicant positive association with
publishing GRI-based sustainability reports.
H6a. Free cash ow has a signicant positive association with
achieving higher application levels of GRI-based sustainability
reports.
H6b. Free cash ow has a signicant positive association with the
external assurance of GRI-based sustainability reports from an in-
dependent verier.
2.7. Growth opportunity
Growth opportunity is argued to be another determinant of
sustainability reporting (Artiach et al., 2010; Ameer and Othman,
2012; Loureno and Branco, 2013). Artiach et al. (2010) posit that
a high level of growth options is likely to encourage a rm to
incorporate sustainable business practices in their strategies. Sus-
tainability reporting could play a legitimizing role in the operations
of growing rms. In other words, economic sustainability must be
supported by social and environmental sustainability as a condition
of going concern. This association is supported by (Artiach et al.,
2010; Ameer and Othman, 2012). Thus, we argue that growing
rms are more likely to publish sustainability reports with high
application levels and to have them externally assured so that they
can legitimate their activities. Thus, we formulate the following
hypotheses:
H7. Growth opportunity has a signicant positive association with
publishing GRI-based sustainability reports.
H7a. Growth opportunity has a signicant positive association
with achieving higher application levels of GRI-based sustainability
reports.
H7b. Growth opportunity has a signicant positive association
with the external assurance of GRI-based sustainability reports
from an independent verier.
2.8. Ownership structure (free oat)
Agency cost arises from the separation of ownership and control
31
and is high in rms with a dispersed ownership structure (Fama
and Jensen, 1983). Monitoring or signaling mechanisms that
reduce agency costs, such as sustainability reporting and assurance,
provide a higher benet to companies that have a dispersed
ownership structure (Ruhnke and Gabriel, 2013). On the contrary,
rms with a concentrated ownership structure are less motivated
to disclose sustainability information, due to the possibility of
obtaining the necessary information directly from the rm
(Reverte, 2009). Based on agency theory, we argue that rms with
high-dispersed ownership structure tend to publish sustainability
reports with high application levels and to have them externally
assured, thus indicating their commitment to sustainability
reporting and enhancing the credibility of the reports contents.
Thus, we formulate the following hypotheses:
H8. A dispersed ownership structure has a signicant positive
association with publishing GRI-based sustainability reports.
H8a. A dispersed ownership structure has a signicant positive
association with achieving higher application levels of GRI-based
sustainability reports.
H8b. A dispersed ownership structure has a signicant positive
association with the external assurance of GRI-based sustainability
reports from an independent verier.
2.9. Firm value
Exploration of the value relevance of sustainability reporting is
important since it requires the commitment of a substantial
amount of resources. Sustainability reports play a complementary
role in the nancial information presented in periodically pub-
lished nancial statements because they reveal a companys long-
term value creation through its intangible assets (particularly
related to environmental and social responsibility) or the possible
risks and opportunities it faces in the market (Lo and Sheu, 2007).
Anam et al. (2011) established a positive association between
disclosure and rm value on the basis of signaling theory and
posited that increasing transparency and disclosure result in
decreasing misevaluation of share price, which in turn, increases
rm value (Anam et al., 2011). Therefore, rms operating in a so-
cially responsible way are more likely to inform stakeholders by
issuing sustainability reports. Another common argument
regarding the connection between sustainability reporting and rm
value centers on the potential of the reporting to enhance the
reputational capital of the issuing rm (Guidry and Patten, 2010). A
recent qualitative research study indicated that 82% of interviewees
consider a sustainability report as a tool for maintenance of the
global reputation of multinational corporations (Momin and Parker,
2013). Neu et al. (1998) also emphasized the impression created by
managements role of sustainability reporting in their early paper,
but not necessarily by the provision of incorrect information.
Earlier papers provided empirical evidence that environmental and
social performance affects the rm value of U.S. corporations
positively (Herremans et al., 1993; Konar and Cohen, 2001). Various
researchers have also proved the value-enhancing role of sustain-
ability reporting in recent studies (Lo and Sheu, 2007; Guidry and
Patten, 2010; Berthelot et al., 2012; Bachoo et al., 2013). Thus, we
formulate the following hypothesis:
H9. Sustainability reporting has a signicant positive association
with rm value.
As highlighted above, we followed a multi-theoretical approach
regarding the determinants of sustainability reporting as well as its
impact on rm value. Fig. 1 depicts the theoretical framework of the
study.
32 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39

Legitimacy Theory
Firm size
Industry
Growth Opportunity

Agency Theory
Leverage
Ownership Structure

Signalling Theory
Sustainability
Reputational Gain
Reporting
Firm Value

Resource Availability
Profitability
Free Cash Flow

Signalling Theory
Liquidity

Fig. 1. Theoretical framework of the study.

3. Research methodology
The study was conducted using initial samples from 100 com-
panies listed on the Borsa Istanbul (BIST) 100 index (see Appendix).
The nancial variables were retrieved from the database of
Thomson Reuters EIKON, while the non-nancial ones (i.e. sus-
tainability reports) were gathered manually from corporate web
sites. This empirical study covers the period between 2011 and
2013, and 300 rm year observations. The denitions of variables
used in the study are shown in Table 1.
Preprocessing of the data analysis is crucial before analyses.
Therefore, missing data analysis was applied initially. One case was
eliminated since a large portion of the variables had missing values.
In addition, the Littles MCAR test was used. The test showed that
the missing values were missing in a non-random way (Chi-square:
224.00; d.f.:158; p-value: 0.000). The missing values were then
replaced by their expected values, calculated by a regression
equation.
The frequency analysis (Table 2) of the sample indicated that
54.5% of the rms are in the service sector, while 45.5% are in the
manufacturing sector. In addition, only 28.9% of sustainability re-
ports were assured by independent veriers; thus the independent
assurance of sustainability reports is in its infancy. Moreover, the
application levels of the reports center around B and B, thus

Table 1
List of variables.

INDUSTRY Takes a value of 1 if rm operates in the manufacturing sector (i.e. high-risk industries), and 0 if rm operates in the service sector
APPLEVEL Takes a value of 1 (undeclared), 2 (C), 3 (C), 4 (B), 5 (B), A (6), and 7 (A)
ASSURANCE Takes a value of 1 if sustainability report is assured by an independent verier, otherwise 0
CRATIO Current ratio, which is current assets divided by current liabilities
FCASH Denotes free cash ow per share
FFLOAT Denotes percentage of free oat number of shares
LEVERAGE The ratio of total liabilities to total assets
MCAP Market to book value which denotes growth opportunity
ROA Return on assets
SIZE Natural logarithm of total assets
SREP Takes a value of 1 if a rm publishes a sustainability report, otherwise 0
SREPGRI Takes a value of 1 if a rm publishes a GRI-based sustainability report, otherwise 0
TOBINQ Market capitalization plus total debt divided by total assets
 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39 33

Table 2 indicate that 17% (50 rm-year observations out of 297) and 15% (45
Frequency analysis of the sample and the sub-sample of 45 GRI-based sustainability rm-year observations out of 297) of rms publish sustainability
reporting companies.
reports and GRI-based sustainability reports respectively.
Variables Frequency Percent In order to determine the bivariate association between vari-
INDUSTRY Manufacturing 135 45.5% ables as well as to assess the multicollinearity issue, the Pearson
Service 162 54.5% Correlation analysis results are provided in Table 4. The results
Total 297 100.0% indicate that there was no high signicant association among the
SREP Non-exist 247 83.2%
independent variables. Moreover, there was a signicant and me-
Exist 50 16.8%
Total 297 100.0% dium level correlation between assurance and sustainability
SREPGRI Non-exist 252 84.8% reporting (r 0.48, p < 0.01) and sustainability reporting based on
Exist 45 15.2% GRI (r 0.46, p < 0.01). On the other hand, as expected, there was a
Total 297 100.0%
high correlation between sustainability reporting adoption and the
ASSURANCE a (based on Non-assured 32 71.1%
45 sustainability reporters) Assured 13 28.9%
GRI-based sustainability reporting adoption (r 0.94, p < 0.01).
Total 45 100.0% Also, there was a signicant association between sustainability
APPLEVEL (based on Undeclared 10 22.2% reporting and the application level (r 0.87, p < 0.01) as well as
45 sustainability reporters) C 5 11.1% between the GRI-based sustainability reporting and the application
C 0 0%
level (r 0.83, p < 0.01). These results reveal that the companies
B 18 40.0%
B 3 6.7% preparing sustainability reports adopted the GRI framework in
A 4 8.9% their reports. As a result, those companies preparing reports
A 5 11.1% attained high application levels. Another noteworthy point is the
Total 45 100.0% correlation between sustainability reporting and external assur-
a
External assurance and independent verication are used interchangeably ance statements, as well as between application levels and external
throughout the study. assurance statements. Hence, these statistics verify that the com-
panies preparing reports seek external assurance for their reports,
and those obtaining a high application level also nd external
Table 3
Descriptive statistics (N 297). assurance service for their reports. This result corroborates the
nding of Ruhnke and Gabriel (2013) which evidenced a signicant
Variables Minimum Maximum Mean Std. deviation
association between the two variables.
CRATIO 0.09 12.73 2.12 1.84
FCASH 12.72 13.59 0.24 2.12
FFLOAT (%) 13.00 100.00 82.51 28.33
3.1. Models
SIZE 10.77 19.30 14.70 1.76
MCAP 11.10 52.09 2.57 5.12 The proposed models are shown below. The dependent variable
ROA (%) 92.58 58.44 6.79 12.20 in the rst model is SREP which represents 0 (absence of sustain-
SREPGRI 0.00 1.00 0.15 0.36
ability report) and 1 (existence of sustainability report); the
SREP 0.00 1.00 0.17 0.37
LEVERAGE 0.01 3.76 0.55 0.37 dependent variable in the second model is SREPGRI, which repre-
TOBINQ 0.18 9.26 1.27 1.32 sents 0 (absence of sustainability report based on GRI) and 1 (ex-
istence of sustainability report based on GRI); and the dependent
variable in the third model is TOBINQ. TOBINQ is used as a proxy for
rm performance, which is calculated as the market value of equity
plus the book value of total assets, minus the book value of equity
signaling a moderate coverage and quality of the reports.
scaled by the book value of total assets following Chung and Pruitt
According to the descriptive statistics (Table 3), the CRATIO
(1994), Faleye et al. (2011), and Conheady et al. (2015). In addition,
average (2.12) shows that Turkish rms appear to be adequately
Model 4 and Model 5 investigate the existence of an assurance
liquid, although there are some exceptions, as denoted by the
statement and a declaration of application level from GRI-based
minimum and maximum values. The FFLOAT average shows that
sustainability reports. Therefore, in the fourth model, the depen-
82.5% of the shares are readily available on the stock market. On
dent variable is ASSURANCE which is measured by 0 (i.e. indicates
average, the market value of rms is 2.57 times the book value, and
the absence of an assurance statement) and 1 (i.e. indicates the
the return on assets is 6.79%. The mean values of SREP and SREPGRI
presence of an assurance statement). The dependent variable of the

Table 4
Pearson correlation analysis results.

Variables 1 2 3 4 5 6 7 8 9 10 11 12

1 ASSURANCE 1
2 CRATIO 0.02 1
3 FCASH 0.02 0.27** 1
4 FFLOAT 0.03 0.16** 0.05 1
5 APPLEVEL 0.56** 0.09 0.03 0.18** 1
6 MCAP 0.02 0.01 0.09 0.01 0.07 1
7 ROA 0.01 0.35** 0.29** 0.04 0.01 0.15** 1
8 SREPGRI 0.46** 0.12* 0.04 0.19** 0.87** 0.08 0.01 1
9 SREP 0.48** 0.13* 0.03 0.20** 0.83** 0.09 0.02 0.94** 1
10 LEVERAGE 0.06 0.42** 0.18** 0.09 0.05 0.04 0.65** 0.04 0.05 1
11 TOBINQ 0.02 0.16** 0.02 0.11 0.07 0.55** 0.09 0.10 0.12* 0.01 1
12 SIZE 0.05 0.13* 0.05 0.44** 0.23** 0.08 0.10 0.28** 0.35** 0.25** 0.20** 1

Note: **p < 0.01; *p < 0.05.

34 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39

fth model was APPLEVEL which measured the application level of Table 6
the GRI-based sustainability report ranging between 1 (undeclared Regression analysis results of Model 4 and Model 5 (N 45).

application level), and 7 (i.e. the highest application level, A). Independent variables Model 4 Model 5

ASSURANCE APPLEVEL
Model 1: SREP b0 b1 FCASH b2 INDUSTRY b3 SIZE b4
FCASH 0.099 (0.24) 0.16 (0.52)
ROA b5 LEVERAGE b6 CRATIO b7 MCAP b8 FFLOAT 3
INDUSTRY 3.79** (2.17) 0.44 (0.70)
Model 2: SREPGRI b0 b1 FCASH b2 INDUSTRY b3 SIZE 0.96 (1.34) 0.50* (1.93)
SIZE b4 ROA b5 LEVERAGE b6 CRATIO b7 MCAP b8 ROA 0.25** (2.28) 0.064 (0.75)
FFLOAT 3 LEVERAGE 4.26 (1.36) 4.35** (2.19)
2.92* (1.90)
Model 3: TOBINQ b0 b1 FCASH b2 INDUSTRY b3 CRATIO 0.58 (1.21)
MCAP 0.79 (1.45) 0.17 (0.41)
SIZE b4 ROA b5 LEVERAGE b6 CRATIO b7 FFLOAT b8 FFLOAT 0.012 (0.63) 0.018 (1.53)
SREPGRI 3 Constant 9.55 (1.04)
Model 4: ASSURANCE b0 b1 FCASH b2 INDUSTRY b3 N 45 45
LNAssets b4 ROA b5 LEVERAGE b6 CRATIO b7 MCAP b8 Wald Chi2/df 16.45**/8
FFLOAT 3 Pseudo R2 0.44
Model 5: APPLEVEL b0 b1 FCASH b2 INDUSTRY b3 Log pseudo likelihood 15.39
SIZE b4 ROA b5 LEVERAGE b6 CRATIO b7 MCAP b8 Note: t statistics in parentheses; ***
p < 0.01; **
p < 0.05; *p < 0.10.
FFLOAT 3

observations, since we investigated which variables might impact

4. Analysis results
the existence of the assurance statement and the application level
on sustainability reports. In order to test this, a rm should have a
The analysis results of Model 1, Model 2, and Model 3, based
GRI-based sustainability report; thus, the sub-sample was estab-
upon the whole sample of 297 rm-year observations, are shown in
lished accordingly. The results indicated that INDUSTRY (b 3.79,
Table 5. According to the results of the rst model, there is a pos-
p < 0.05) and CRATIO (b 2.92, p < 0.1) have positive and statis-
itive and statistically signicant association between INDUSTRY and
tically signicant effects upon ASSURANCE, while there is a nega-
SREP (b 1.05, p < 0.05), SIZE has a positive and statistically sig-
tive relationship between ROA and ASSURANCE (b 0.25,
nicant impact on SREP (b 0.83, p < 0.01), and nally LEVERAGE
p < 0.05). The results of Model 5 revealed a positive and signicant
(b -2.25, p < 0.10) and CRATIO (b 0.39, p < 0.05) have negative
association between LEVERAGE and APPLEVEL (b 4.35, p < 0.05)
and statistically signicant associations with SREP. For the second
while there was a negative and weakly signicant relationship
model, the results indicated that INDUSTRY (b 1.26, p < 0.01) and
between SIZE and APPLEVEL (b 0.5, p < 0.1).
SIZE (b 0.72, p < 0.01) have positive and highly signicant asso-
ciations with SREPGRI, and that there is a negative relationship
between CRATIO and SREPGRI (b 0.36, p < 0.05). According to 5. Discussion
the third models results, INDUSTRY (b 0.46, p < 0.05), SIZE
(b 0.43, p < 0.01), and FFLOAT (b 0.008, p < 0.01) have Firstly, the rst and second columns in Table 5 report the results
negative and statistically signicant impacts on TOBINQ while ROA of Model 1 and Model 2 respectively. The similarities of ndings
(b 0.029, p < 0.05), LEVERAGE (b 1.05, p < 0.01), CRATIO between the two models verify the robustness of the analyses.
(b 0.14, p < 0.05), and SREPGRI (b 0.24, p < 0.1) have positive According to the results, rm size is a signicant determinant of
and signicant associations with TOBINQ. sustainability reporting; hence, larger rms are more likely to
The regression analysis results of Model 4 and Model 5 are publish a sustainability report than smaller rms. This nding is
represented in Table 6. This analysis is based upon a sub-sample of consistent with most of the previous studies carried out in China
45 rm year observations out of the whole sample of 297 (Liu and Anbumozhi, 2009), in Spain (Reverte, 2009), in the US.
(Artiach et al., 2010), in India (Kansal et al., 2014), in Sri Lanka
(Shamil et al., 2014; Dissanayake et al., 2016), and in Canada (Nazari
Table 5
et al., 2015). This nding should be evaluated within the context of
Regression analysis results of Model 2, Model 2, and Model 3 (N 297). legitimacy theory, in that larger rms might have more to lose due
to illegitimacy, compared to smaller ones. Moreover, larger rms
Independent Model 1 Model 2 Model 3
variables
tend to make better use of economies of scale, and have higher
SREP SREPGRI TOBINQ nancial and human capital.
FCASH 0.0084 (0.08) 0.016 (0.15) 0.043 (0.97) Secondly, the study nds that rms operating in the
INDUSTRY 1.05** (2.49) 1.26*** (2.82) 0.46** (2.37) manufacturing sector have a propensity to publish sustainability
SIZE 0.83*** (4.95) 0.72*** (4.41) 0.43*** (6.83)
reports rather than reports from service rms; thus, the association
ROA 0.012 (0.52) 0.0021 (0.09) 0.029** (2.10)
LEVERAGE 2.25* (1.68) 1.73 (1.29) 1.05*** (2.99) between industry and reporting is proven. This might be explained
CRATIO 0.39** (2.24) 0.36** (2.06) 0.14*** (2.59) by the fact that rms which produce goods have higher environ-
MCAP 0.035 (0.62) 0.042 (0.64) mental impacts and cause more health problems than service rms
FFLOAT 0.0053 (0.76) 0.0017 (0.25) 0.008*** (3.53) (Brammer and Pavelin, 2008; Reverte, 2009). The relationship be-
SREPGRI 0.24** (2.09)
tween industry and sustainability reporting was proven in prior
Constant 13.0*** (5.20) 11.8*** (4.76) 7.35*** (6.70)
studies as well (Brammer and Pavelin, 2008; Reverte, 2009;
N 297 297 297
Legendre and Coderre, 2013). In addition, the signicant impact
Wald Chi2/df. 52.09***/8 45.97***/8
Pseudo R2 0.20 0.18 of industry on sustainability reporting shows the relevancy of
Log pseudolikelihood 107.858 103.9911 legitimacy theory in explaining sustainability reporting practices in
F-stat 9.71*** Turkish rms. This nding conrms the evidence provided by
R2 0.25 Braam et al. (2016) indicating that weaker environmental per-
*** **
Note: t statistics in parentheses; p < 0.01; p < 0.05; *p < 0.10. formers are inclined to disclose environmental information more
 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39
fully than higher environmental performances, due to their wish to
seek legitimacy.
Thirdly, leverage has a negative but weak association with sus-
tainability reporting, which implies that the larger the leverage is,
the less likely that a rm will publish a sustainability report. This
nding is in line with many previous studies which could not prove
a positive association between leverage and sustainability report-
ing (Liu and Anbumozhi, 2009; Reverte, 2009; Artiach et al., 2010;
Loureno and Branco, 2013; Kansal et al., 2014; Shamil et al., 2014;
Nazari et al., 2015). One possible factor driving the lack of this
relationship could be that creditors do not care whether rms
engage in sustainability issues (Liu and Anbumozhi, 2009); hence,
agency theory is not supported in this respect. Another reason
could be that highly leveraged rms are constrained by their
nancial resources and as well, they could be more focused on
short-term goals rather than long-term ones. Thus, they might
consider sustainability reporting as a luxury, rather than as a long-
term value-generating practice.
Finally, there is a negative association between current ratio and
sustainability reporting, which lends support to Shen and Chang
(2009), and Jennifer Ho and Taylor (2007), but is opposed to
Bakar et al. (2011). This result suggests that rms with higher
liquidity tend to have a lower interest in preparing sustainability
reports. Contrary to prior assumptions, the negative signicant
association between current ratio and sustainability reporting has
motivated us to engage in further analyses. The investigation yiel-
ded interesting results. Using descriptive statistics only, companies
using GRI based sustainability reports have a mean current ratio of
1.62 (min. 0.64, max. 4.63, standard deviation 0.785),
whereas companies who do not utilize these reports have a mean
value of 2.21 (min. 0.09, max. 12.73, standard
deviation 1.955). These statistics provide an opinion on the
liquidity management of companies using these reports or not. On
average, companies using the reports satisfy the adequate and
conventional norm (2:1) of the current ratio stated in the textbooks
(Wild et al., 2001; Williams et al., 2015); on the other hand, the
companies that do not use such reports have an average current
ratio above this norm; also their minimum, maximum, and stan-
dard deviation values indicate wide dispersion with some symp-
toms of mismanagement of liquidity. One more note regarding
over-liquidity is that it affects protability negatively (Eljelly,
2004). Therefore, we can say that companies using reports have
better liquidity management than those who dont.
Other factors (i.e. protability, free cash ow, growth opportu-
nity, and ownership structure) are not statistically signicant,
which means they do not inuence the adoption of sustainability
reporting practices (Table 5, the results of Model 1 and Model 2).
Therefore, the stated theories (i.e. economic resources availability,
legitimacy theory, and agency theory) underlying the association
between these variables and sustainability reporting practices are
not supported.
Further analysis to investigate the value relevance of GRI-based
sustainability reporting conrms a positive relationship between
sustainability reporting and rm value, which means the
endorsement of sustainability issues pay back (Table 5, the results
of Model 3). Our ndings conrm the ndings of prior studies
conducted in developed markets such as in the U.S., (Lo and Sheu,
2007; Guidry and Patten, 2010), in Canada (Berthelot et al., 2012),
and in Australia (Bachoo et al., 2013). This nding proves the
signaling and reputation-enhancing role of sustainability
reporting.
Finally, according to the results of Model 4 in Table 6, industry
and liquidity play a positive and signicant role, but protability
plays a negative and signicant role in obtaining assurance service
for sustainability reports. Specically, the nding regarding a
35
signicant association between an industry and its assurance
statement is noteworthy. Given that obtaining external assurance
for sustainability is costly, companies with a poor sustainability
performance must improve the credibility of their sustainability
reports so that they can derive more benet from them, as
compared to higher sustainability performers (Braam et al., 2016).
Thus, this nding conrms the legitimacy theory. Moreover, Model
5 in Table 6 reveals that none of the variables is a signicant
determinant of the application level of sustainability reports. Thus,
these two types of investigations need to be further investigated
with a wider sample.
It is accepted that coefcients estimate trends, while R-squared
illustrates scatter around the regression line. However, the in-
terpretations of the signicant variables are the same in models
with a low or high R-square. The model with a low R-square is
problematic when we need a precise prediction. It is not an issue
in this study since we used coefcient estimates for testing the
hypothesis. In addition, a similar statistic relating to R-squared
OLS does not exist when analyzing the logistic regression. There
are various pseudo R-squared measures available in statistical
packages which cannot be interpreted in the same way as one
would interpret an OLS R-squared. The variance explained by the
independent variables in the models ranges between 4.8% and
44% (Only Model 3 has an OLS R-squared value with 0.25, while
the other models have Pseudo R-squared values). Overall, the
small sample size of our study, compared with the samples in
previous research, might be a possible reason for the relatively
weak explanatory power of the models in the study (De Beelde
and Tuybens, 2015). Another possible reason is that sustainabil-
ity reporting behavior did not follow any pattern in relation to the
variables under study over the observation period (Al-Akra et al.,
2010). Finally, other than the variables employed in the study,
other factors might inuence sustainability reporting practices
(Yusoff et al., 2013; Keerasuntonpong et al., 2015; Viljoen et al.,
2016) such as internal (i.e. board characteristics) and external
factors (i.e. stakeholders). Thus, the ndings highlight further
research avenues regarding the inclusion of other factors.
Furthermore, we examined similar studies in terms of explained
variance. Accordingly, R-square values ranged between 0.03 and
0.46 (Jennifer Ho and Taylor, 2007), 0.04 (Legendre and Coderre,
2013), 0.20 (Kolk and Perego, 2010), and ranges between 0.16
and 0.18 (Artiach et al., 2010). This demonstrates that the R-square
values in this study are not much dissimilar from that of the prior
studies.
6. Conclusion
This study aimed at investigating the determinants of sustain-
ability reporting practices by listed Turkish corporations. Even
though the current level of adoption of sustainability reporting is
low, there is a growing interest among manufacturing and service
companies. The study makes a signicant contribution to the sus-
tainability issue in the context of emerging markets, unlike the
majority of prior studies which highlighted developed markets.
Emerging markets are differentiated from those of developed
markets in several aspects, such as having a relatively weak regu-
latory environment, and a low information disclosure level, causing
a wide information gap between insiders and outsiders (Uyar and
Kili, 2012). All these factors result in costly external funding for
companies operating in emerging markets (Uyar and Kuzey, 2014).
Moreover, Arslan et al. (2006) argues that this situation leads to
more dependency on internally generated funds in these markets.
We assume that sustainability reporting might be a tool of over-
coming this issue and contributes to the transparency of these
markets.
36 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39
The ndings indicated rstly that manufacturing companies are
more likely to engage in sustainability reporting. Secondly, rm size
is a signicant determinant of sustainability reporting, which might
imply that larger companies attempt to reduce agency costs by
issuing sustainability reports. Thirdly, leverage has a weak negative
association with sustainability reporting. Although it is not an
important driver, it can be said that the higher the leverage, the less
likely that the rm engages in sustainability reporting. Another
noteworthy point is the signicant correlation between sustain-
ability reporting and the external assurance statement, as well as
between report application levels and external assurance state-
ments. Hence, these statistics reveal that the companies preparing
reports seek external assurance for their reports, and that those
achieving a high application level also receive external assurance
service for their reports. Finally, to the contrary, the current ratio
has a negative association with sustainability reporting practices.
However, as discussed in previous section, this result signals that
companies preparing reports better manage their liquidity than
those who dont. Additionally, as a signicant nding of the study,
sustainability reporting drives value. This nding indicates that
sustainability reporting is value relevant. This relevancy might play
an important role in motivating companies that do not prepare
reports.
Other than these main ndings, the analyses based on a small
subsample of companies preparing reports showed that
manufacturing rms tend to have their reports assured through an
independent verier. Moreover, protability has a negative asso-
ciation with using independent assurance services, and the current
ratio has a weak positive association. The application levels of
sustainability reports ranging between C (the lowest) and A (the
highest) have no signicant association with any of the potential
explanatory factors. These ndings might be open to debate since
they are based upon a very small subsample. Thus, they should be
veried on a wider range. Moreover, the small number of assured
sustainability reports indicates that it is not widespread among
corporations, corroborating the nding of Junior et al. (2014). Even
though the assurance on sustainability reports is voluntary, unlike
nancial reports, the technical content justies the need for veri-
cation. In addition, external assurance prevents criticisms against
sustainability reporting that embedded information is self-
gathered and self-reported (Romolini et al., 2014). In a qualitative
study, interviewed corporations expressed positive views sup-
porting the benets of assurance, even demanding more guidance
regarding the development of an efcient internal control system
(Park and Brorson, 2005). In developing this market, Big-4 auditing
rms, local initiatives, and GRI could all undertake more active
roles.
The study has signicant implications for rms and regulatory
bodies. Albeit there is a growing interest, the current state of sus-
tainability reporting is not satisfactory across manufacturing and
service rms. In this, several factors might play a signicant role,
such as lack of awareness at the top and lower levels of managers,
lack of guidance and enforcement at the regulatory level, and the
potential costs of reporting. Therefore, rstly, sustainability issues
need to be tackled at the board level, since it is the ultimate
decision-maker. Then, the issue should be placed in the organiza-
tions structure, which might necessitate the training of relevant
personnel, new recruitments, and/or the establishment of a sus-
tainability department and committee. Thus, it requires a nancial
and human resource commitment. Secondly, regulatory bodies
could occupy a leadership position in the marketplace through
guidance and requiring the adoption of sustainability reporting. In
this regard, a favorable initiative has recently been undertaken by
the Borsa Istanbul, with the establishment of the Sustainability
Index in the stock market. Thirdly, creditors, particularly banks,
should take the social responsibility of rms, together with nan-
cial performance, into consideration when granting loans, thus
motivating rms to behave in a socially and environmentally
responsible manner. Finally, the key ndings of this study may help
policy makers facilitate decision-making with respect to future
regulation proposals (Hogan and Lodhia, 2011). However, the
improvement of an overall sustainability reporting culture in a
country is not only dependent upon rms and institutions, but also
upon civil organizations, public, media and so on. These are the
factors that help build sustainable corporations in economic,
environmental, and social terms. Institutional investors might
particularly play a crucial role in rms commitments to sustain-
ability issues and reporting, since they can exercise more pressure
on rms, compared to individuals. This issue should be considered
by market regulators as well, since sustainability reporting is a tool
of transparency and disclosure and contributes to the efciency of
market mechanism.
The study has some theoretical implications as well. The nd-
ings support legitimacy and reputational theories rather than the
other theories in the Turkish context. This implies that legitimating
operations and avoiding illegitimacy issues are driving forces
behind sustainability reporting practices. This might be due to the
fact that rms are under the scrutiny and pressure of various
stakeholders, such as the media, the public, and regulators in sus-
tainability matters. Moreover, reputational gain theory is supported
by the impact of sustainability reporting on rm value. It shows that
investors recognize sustainability reports, and incorporate them in
their investment decisions. The results also support signaling the-
ory in terms of the value creation role in sustainability reporting.
This nding has signicant implications for rms. If they care about
sustainability issues (i.e. environmental and social), they must
announce this by issuing sustainability reports. Doing so will
enhance their reputations while attracting individual and institu-
tional investors. This will prevent the undervaluation of their rms
and at the same time contribute to the efciency of the market.
Thus, sustainability reporting contributes to the efcient func-
tioning of stock markets.
This paper has several limitations; hence, the ndings should be
considered in this light. Firstly, the dataset refers to only the three
years between 2011 and 2013, since sustainability reporting is a
relatively hot topic. Secondly, only 15.2% of the sample prepares a
GRI-based sustainability report and only a small number of these
rms have their reports assured by an independent assurer. This
low rate of adoption could reduce the validity of the ndings.
Thirdly, other factors might affect the presentation of the sustain-
ability reports, such as board structure and stakeholders other than
shareholders. This paper does not incorporate these factors into the
investigation. Thus, a further study might consider these additional
potential drivers of sustainability reporting. Given that we focused
on sustainability reporting in the Turkish setting, the results cannot
be generalized to other countries; however, the validity of ndings
in other emerging markets (i.e. Brazil, Russia, India, China) might be
tested. In order to examine the drivers of sustainability reporting,
application levels, and external assurance in greater depth, case
studies and interviews could be undertaken. Finally, survey meth-
odology might be a suitable way to analyze the perceptions of
various stakeholders in sustainability reporting, application levels,
and external assurance.
 C. Kuzey, A. Uyar / Journal of Cleaner Production 143 (2017) 27e39 37

Appendix (continued )

BIST code Homepage

SAHOL https://www.sabanci.com/tr
List of BIST 100 companies SASA http://www.sasa.com.tr/
SISE http://www.sisecam.com.tr/tr/
BIST code Homepage SKBNK http://www.sekerbank.com/
SNGYO http://sinpasgyo.com/
AEFES http://www.anadoluefes.com/
SODA http://www.sodakrom.com/tr/
AFYON http://www.afyoncimento.com.tr/
TATGD http://www.tatgida.com/tr
AKBNK http://www.akbank.com/
TAVHL www.tavhavalimanlari.com.tr
AKENR http://www.akenerji.com.tr/
TCELL http://www.turkcell.com.tr/
AKSA http://www.aksa.com/
TEKST http://www.tekstilbank.com/
AKSEN http://www.aksaenerji.com.tr/
THYAO http://www.turkishairlines.com/
ALARK http://www.alarko.com.tr/
TKFEN http://www.tekfen.com.tr/
ALGYO http://www.alarkoyatirim.com.tr/
TKNSA http://www.teknosa.com/
ALKIM http://www.alkim.com/tr/index.aspx
TMSN http://www.tumosan.com.tr/
ANACM http://www.anadolucam.com.tr/
TOASO http://www.tofas.com.tr/
ARCLK http://www.arcelik.com.tr/
TRCAS http://www.turcas.com.tr/tr/
ASELS http://www.aselsan.com.tr/
TRGYO http://www.torunlargyo.com.tr/
ASUZU http://www.anadoluisuzu.com.tr/
TRKCM http://www.trakyacam.com.tr/
AYGAZ https://www.aygaz.com.tr
TSKB http://www.tskb.com.tr/
BAGFS www.bagfas.com.tr
TTKOM http://www.turktelekom.com.tr/
BIMAS www.bim.com.tr
TTRAK http://www.turktraktor.com.tr/
BIZIM http://www.bizimtoptan.com.tr/
TUPRS http://www.tupras.com.tr/
BJKAS http://www.bjk.com.tr/sirketlerimiz/futbol_as/
ULKER http://www.ulker.com.tr/
BRISA http://www.brisa.com.tr/
VAKBN http://www.vakifbank.com.tr/
BRSAN http://www.borusan.com.tr/
VESTL http://www.vestel.com.tr/
CCOLA http://www.cci.com.tr/
VKGYO http://www.vakifgyo.com.tr/
CIMSA http://www.afyoncimento.com.tr/
YAZIC http://www.yazicilarholding.com/
CLEBI http://www.celebihandling.com/
YKBNK http://www.yapikredi.com.tr/
DGGYO http://www.dogusgrubu.com.tr/
ZOREN http://zoren.com.tr/
DOAS http://www.dogusotomotiv.com.tr/
DOHOL http://www.doganholding.com.tr/
ECILC http://www.eis.com.tr/
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