Exploring the Relationship Between Sustainability Disclosure, Financial Performance and Initial Public Offerings: UK evidence among recently listed companies on the AIM

Caroline Brey & Margrethe Haavaldsen

Student thesis: Master thesis


Executive Summary: Sustainability disclosure and reporting has been a popular subject of research within business administration and economics during the last five decades while at the same time the amount of sustainability disclosure in annual reports is increasing (Bebbington, Larrinaga, & Moneva, 2008). Multiple studies have sought to uncover whether or not there is a relationship between sustainability disclosure and the financial performance of companies. Yet relatively few studies have specifically examined the potential relationship between sustainability disclosure and stock markets. The literature remains inconsistent, as there is evidence that the relationship between sustainability disclosure and share price performance is both positive and non-existent. This thesis introduces a new dimension to the discussion on sustainability disclosure and financial performance: Initial Public Offerings (IPOs). The authors argue that a company undertaking an IPO faces increased investor scrutiny and therefore, strives to disclose an extensive amount of information in its annual report to enhance transparency. Tregidga et al. (2006) suggest that companies can utilize sustainability disclosure to enhance its transparency and legitimacy. Consequently, the authors of this thesis seek to investigate whether or not the financial performance of companies recently listed on the Alternative Investment Market (AIM) a sub-market on the London Stock Exchange is affected by sustainability disclosure. The research is based on the assumption that should sustainability disclosure provoke a market response, investors are making use of sustainability disclosure and adjusting their expectations and decision-making accordingly. The intricate and multifaceted relationship between sustainability disclosure and financial performance is explored in this thesis along with a review of a wide variety of current and historical literature on sustainability disclosure, financial performance and IPOs. The authors collect data over a seven-year period from 121 firms listed on the AIM in 2006. The final sample consists of primary data from 721 annual reports, as well as data on share price and market capitalization for all companies. Subsequently, three statistical tests are conducted and the results suggest that there is no relationship between sustainability disclosure and share price performance of recently listed companies on the AIM. The findings of this thesis contribute to the existing literature by exploring three topics that have not yet been addressed simultaneously in previous research, to the authors’ knowledge: sustainability disclosure, financial performance, and IPOs. Furthermore, the data on sustainability disclosure collected by the authors is unique as it consists of small and medium-sized firms.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2014
Number of pages168