Impression Management in Sustainability Disclosures and Information Asymmetry: The Case of Brazilian Public Companies

Abstract

This study investigated whether impression management (IM), which is constantly used in sustainability disclosures (D-CSR in Brazil), is associated with higher levels of information asymmetry (IA) by analyzing 55 Brazilian listed companies’ D-CSRs from 2016 to 2020 (266 reports in total). The codification model and measurements were adapted to capture the IM level using four techniques: attribution, comparison, emphasis, and thematic emphasis. The IA proxy was measured by the bid-ask spread and tested using a nonlinear regression with unbalanced panel data based on the generalized linear method. The results show that IA levels increase with higher IM use in D-CSR, supporting the hypothesis that IM brings suspicion to investors because of perceived informational bias. The study fills a gap in the literature in that it provides quantitative evidence that investors are becoming more attuned to ESG (Environmental, Social, and Governance) issues and are thus able to recognize language in disclosure documents that attempts to disguise poor sustainability practices. Clearly, the International Sustainability Standards Board needs to consider IM in the methodology for enhancing international sustainability disclosure standards. This procedure is relevant, considering that IM use in sustainability disclosures prejudices external users’ evaluations and decision-making due to opacity and bias.