Is transparency in sustainability the fruit of business trust: Evidence from sustainability disclosure?

Abstract

This research explores the relationship between sustainability disclosures and business trust within a dataset comprising 689 publicly listed companies in China spanning from 2006 to 2018. Our analysis delves into how business trust influences levels of sustainability disclosure, revealing a positive correlation between the two. To ensure the reliability of our findings, we conducted additional tests to address potential endogeneity concerns. Supplementary analyses indicate that this positive relationship between sustainability disclosure and business trust is particularly notable among non‐state‐owned enterprises (non‐SOEs) and companies operating in regions characterized by lower levels of marketization. Our study aligns with the principles of neo‐institutional theory, indicating that business trust, functioning as an informal institution, shapes firms' sustainability disclosure practices through normative pressures. Moreover, we observe that business trust holds more sway over sustainability disclosure practices in contexts where formal institutions are weaker. These findings contribute fresh perspectives on the determinants of sustainability disclosures and underscore the pivotal role of business trust in fostering such disclosures. Based on our findings, we suggest that policymakers should foster a business environment that enhances trust among stakeholders, encouraging firms, especially in regions with weak formal institutions, to engage more rigorously in sustainability disclosure. Such policy initiatives could include developing clearer guidelines for sustainability reporting and promoting transparency as a core business value. The implications of our research extend to managers, regulators, and investors alike, highlighting the need for integrated approaches to enhance transparency and trust in the business sector.