Beyond Earnings: The Synergistic Effects of Financial Quality and Sustainability Disclosures on Market Valuation of Manufacturing Firms

Abstract

This research examines the impact of financial reporting quality on the market valuation of manufacturing firms under the integrated reporting (IR) framework, with a particular focus on how sustainability accounting information interacts with financial data. The study uses 3328 firm-year data points from the National Stock Exchange (NSE) listed manufacturing firms in India and applies a linear price-level model to analyze the relationship between market value, reported earnings, and book value of equity. The findings indicate that the voluntary adoption of the IR approach has significantly enhanced the value relevance of summary accounting information. Furthermore, sustainability accounting disclosures, including ESG ratings, play an important role in interacting with financial information, underscoring the importance of integrating sustainability aspects into financial reporting practices. Based on these findings, the study advocates for the mandatory adoption of integrated reporting by firms in emerging economies like India, particularly in the manufacturing sector, to improve reporting quality.