Does designing environmental disclosure quality measures make a difference?

Abstract

Assessing the quality of information disclosed by companies is a complex task. Accounting studies usually rely on analysing the content of corporate reports using measures to obtain a proxy for the information reported by companies. However, there is no consensus about the best design for these measures. The objective of the current paper is to investigate if there are significant differences in the results generated from seven alternative measures for assessing the quality of FTSE100 environmental sustainability reporting. Seven measures/indices have been used to assess disclosure quality. The three uni-dimensional measures include two “Quantity measures” and one “Scope measure” that measure the volume and width/coverage of information respectively. Three compound measures are adopted from the literature (Al- Tuwaijri et al. (2004); van Staden and Hooks (2007), and Beretta and Bozzolan (2008), and the final measure is a multi-dimensional quality model, based on the results of a questionnaire ascertaining the perceptions of 86 preparers and 177 users of annual report (AR) and/stand-alone corporate responsibility report (CRR). While the results of the empirical analysis indicate that the measures are significantly correlated, the choice of a specific method can result in the very different ranking of companies. The evidence presented indicates that the choice of measure is of key importance.