Sustainability Report and Bank Valuation: Evidence from European Stock Markets

Applying the value relevance analysis to a sample of European banks, we test: i) the direct effects of a sustainability report on stock price; ii) whether the document modifies the value relevance of financial accounting variables (indirect effect); and iii) whether the value relevance of sustainability reports varies across countries. Results show that investors appreciate the additional and complementary disclosure provided by a sustainability report and that this disclosure produces a positive effect on stock prices. The estimates of the indirect effects of the sustainability report on stock price demonstrate that it has a negative influence on book value per share, whereas its effect on earnings per share is not significant. Cross-country analysis shows that the value relevance of the sustainability report varies across European countries consistent with the hypothesis that the value relevance of the sustainability report is likely to be influenced by different institutional contexts.