Literature Review

Sustainability report of a company implies a composite report consisting economic, social and environmental impact resulted from daily operation of the organization (Ogundare, 2013) In other word, the sustainability report is a representative model of governance and value of an organization (Nor et al., 2016). It also represents interlinkage between strategy of a company and its commitments towards achieving a sustainable economy (Loh, Thomas & Wang, 2017)

Market performance of a company covers the ultimate results of different policies including relationship between selling price and cost, output size, relative progressiveness of the company, production efficiency compared to its rivals and others (Eccles, Ioannou & Serafeim, 2014). Different indicators of market performance include markets share, profitability, revenue, return on equity, return on assets and the like.

The sustainability reporting has now a days become one major issue concerning across the world. The main objective of sustainable practice is to meet the needs to present generation without sacrificing the potential ability of future generation (Golicic & Smith, 2013) In regard to this, investor now place a considerable importance on non-financial performance of a company. The issue of corporate sustainability attracts significant attention in the phase of increased regulation and awareness among the stakeholder (Hsu et al., 2016).

The research study analyzes impact of sustainability disclosure on market performance of Coca-Cola. It is an American Corporation engaged in manufacturing and retailing of non-alcoholic beverages and syrups (coca-colacompany.com, 2018). The company accounts its sustainability reporting covering two major objectives of documentation and assessment of environmental and social impact of the company (Cheng, Green & Ko, 2014) Additionally, the company incorporates its sustainability disclosure in order to access the scope to communicate regarding its progress of sustainability and efforts to stakeholders of the organization.

The present paper aims at evaluating how sustainability disclosure of Coca-Cola affects market performance of the company.

In order to accomplish the research aim following research questions are prepared.

Does sustainability disclosure of Coca – Cola have any effect on return of assets (ROA) of the company?

Does sustainability disclosure of Coca – Cola affects return of equity (ROE) of the company?

Several scholarly researches successfully proved implication of sustainability reporting of an organization in modern business world (Khan, Serafeim & Yoon, 2016). In studies related to ranking of sustainability, bankers, analysts and other were asked to report rank on different accounting data to understand the perceived importance of sustainability (Nekhili et al., 2017). These studies concluded that sustainability reporting is mostly ranked as moderately important for financial community (Lu et al., 2014). Study also founded that sustainability reporting accounted a higher importance in financial world compared to many of the components that were crucial in past and attracted considerable attention of the researchers (Ekwueme, Egbunike & Onyali, 2013) Sustainability reporting is considered as typically important as to represent engagement and communication between an organization and its stakeholders. Stakeholders of a company include shareholders, employees, investors, suppliers, community and government (Andrikopoulos & Kriklani, 2013) It is of increasingly interesting for a company to know sustainability practice of a company and performance of the company in managing impact of sustainability on creating potential value of the company and mitigating future risks (Nobanee & Ellili, 2016) This adds to the importance of sustainability reporting. The recent study confirmed that senior directors and executives of a company now place great importance in handling issues related to sustainability (Busch, Bauer & Orlitzky, 2016).

Research Questions and Objectives

Studies examining impact of sustainability reporting on market performance of an organization used different aspects of market performance (Ng & Rezaee, 2015). One such study examined the impact of social, environmental and ethical aspects on corporate performance for a company named Alpha (Reimsbach & Hahn, 2015). The paper used measures like GRI, guidelines for accountability and other reporting principles and concluded that for the selected company social, environmental and ethical issues do not record much accountability to different stakeholders (Kim & Lyon, 2014). Rather the evidences suggested a low accountability towards sustainability reporting. Various external sources raised several questions regarding stakeholders’ participation in reporting sustainability (Yusuf et al., 2013).

An empirical study analyzing importance of environmental disclosure revealed a positive association between discretionary disclosure of a company and its environmental performance (Chen, Feldmann & Tang, 2015). The paper made an extensive research design to study importance of sustainability reporting. Results from past study questioned robustness of socio political theories regarding prediction of environmental disclosure of a company. Analysis of this study was based on the guidelines of Global Sustainability reporting. This study attempted to assess the impact of environmental and social disclosure (Hahn & Kühnen, 2013). In this study, 191 firms were randomly chosen from five industries namely Pulp and Paper, Oil and Gas, Metals and Mining, Chemicals and Utilities (Hahn & Lulfs, 2014). The chosen five industries tend to have higher population propensity and subject to strict environment regulation in United State in the last 30 years or more (Michelon, Boesso & Kumar, 2013). Literature based on public listed companies in Malaysia suggested that there exists a significant and positive relation between corporate social responsibility of these companies and institutional ownership.

In order to analyze the two research questions following two hypotheses are developed.

Hypothesis 1

Null Hypothesis (H_I0): Sustainability reporting of Coca- Cola has no statistically significant impact on Return on Assets (ROA) of the company.

Alternative Hypothesis (H_1A): Sustainability reporting of Coca-Cola has a statistically significant impact on Return on Assets (ROA) of Coca-Cola.

Hypothesis 1

Null Hypothesis (H₂₀): Sustainability reporting of Coca- Cola has no statistically significant impact on Return on Equity (ROE) of the company.

Alternative Hypothesis (H_2A): Sustainability reporting of Coca-Cola has a statistically significant impact on Return on Equity (ROE) of Coca-Cola.

Objective of the research study is to find out how sustainability reporting affects market performance of Coca-Cola Company. The papers conducts an explorative research depending upon raw data collected from sources (McCusker & Gunaydin, 2015). The data are available publicly on official websites of the company ad website reporting sustainability practice and sustainability ranking. The paper thus reviews data from published document of the selected company, sustainability report and annual reports

Methodology

In order to model sustainability reporting, rating in five different aspects are considered. These are rating relating to Corporate Social Responsibility, Community performance rating, Employees performance rating, Environment performance rating and finally Government performance rating. All the ratings are measured on a scale ranging from 0 to 100. Data relate to sustainability reporting of Coca- Cola are collected from CSR hub. Market performance of the company is measured in terms of Return on Assets and Return on Equity. These data are collected from annual reports available in the official website of the company. All the data are collected for the last fifteen years ranging from 2003 to 2017.

 As the paper explore relation between sustainability, reporting and market performance quantitative data analysis method is appropriate here. Data on last fifteen years have been analyzed using different statistical measures namely descriptive, correlation and regression analysis. Summary or descriptive statistics helps to understand the overall trend of data series including average, maximum, minimum, standard deviation and other. Bivariate correlation is analyzed to find association of ROA and ROE with each of the sustainability indicator (Mertens, 2014). The obtained association from bivariate correlation is finally verified using regression analysis.

Two separate regression analysis has been conducted to find out the impact of sustainability disclosure on market performance. In one model Return on Asset is taken as dependent variable and independent variables are overall CSR rating, Community Performance Rating, Employees Performance Rating, Environmental Performance Rating and Governance Performance Rating. In the second model, Return on Equity is taken as dependent variable and overall CSR rating, Community Performance Rating, Employees Performance Rating, Environmental Performance Rating and Governance Performance Rating are the independent variables.

First part of the analysis requires information regarding sustainability disclosure of Coca- Cola. The ratings are reported about Corporate Social Responsibility, Community Performance, Employees Performance, Environmental Performance and government performance. The sustainability reporting. Data on sustainability reporting of Coca-Cola is available at CSR Hub.

The dependent variables are ROA and ROE. Data on ROA and ROE are available at official website of the company. From the published annual report data on net income, total assets and total equity are collected for the last fifteen years. Return on asset is then computed using data on net income and total assets. Using the data on net income and total equity return on equity is computed for each of year. 

The average CSR reporting for the company is close to 56. This means in the last fifteen years, Coca- Cola managed to obtain a CSR rating of 56 on an average. The standard deviation of CSR rating has a relatively small value of 3.60. The minimum and maximum CSR rating for the company is 52 and 63 respectively.

Results

The average COM rating or the company is close to 53. This means in the last fifteen years, Coca- Cola managed to obtain a COM rating of 53 on an average. The standard deviation of COM rating has a relatively small value of 1.03. The minimum and maximum COM rating for the company is 51 and 54 respectively.

Mean rating of EMP for the company is approximately 53. This means in the last fifteen years, Coca- Cola managed to obtain a EMP rating of 53on an average. The standard deviation of EMP rating has a relatively small value of 0.91. The highest and lowest EMP rating for the company is 54 and 51respectively.

The average ENV reporting for the company is close to 65. The standard deviation of ENV rating has a relatively small value of 0.80. The minimum and maximum ENV rating for the company is 63 and 66 respectively.

The mean GOV reporting for the company is close to 52. This means in the last fifteen years, Coca- Cola managed to obtain a GOV rating of 52 on an average. The standard deviation of GOV rating has a relatively small value of 1.95. The lowest and highest GOV rating for Coca-Cola is 49 and 54 respectively.  

The average return on asset for Coca- Cola in the last fifteen years is 0.12. The same for return on equity is slightly higher at 0.27. The standard deviation of ROS is relatively lower than ROE implying the series of ROA has a greater stability than ROE. The minimum and maximum value for ROA is 0.01 and 0.17. The corresponding value for ROE is 0.06 and 0.38 respectively. 

Bivariate correlation is analyzed to evaluate the association between ROA and ROE with different measures of sustainability reporting. The correlation estimate between ROA and overall CSR rating is positive with value of correlation coefficient is 0.44. That is overall rating of CSR constitute a positive association with ROA of the company. For community performance rating estimated correlation between ROA and COM is positive but weak as reflected from the lower positive value of correlation coefficient of 0.29. In case of Employee Performance rating the obtained correlation is 0.49 indicating a moderate positive association between the two. Correlation for environmental performance rating and that of ROA is 0.59. The association between ROA and ENV is the strongest as revealed from the highest value of correlation coefficient. The weakest association has been observed for Government Performance Rating and ROA. The estimated correlation between GOV and ROA is the smallest of 0.04.

Conclusion

The correlation estimate between ROE and overall CSR rating is positive with value of correlation coefficient is 0.25. That is overall rating of CSR constitute a weak positive association with ROE of the company. In case of community performance rating estimated correlation between ROE and COM is positive but weak as reflected from the lower positive value of correlation coefficient of 0.37. For Employee Performance rating the obtained correlation is 0.71 indicating a strong positive association between the two. The association between ROE and EMP is the strongest as revealed from the highest value of correlation coefficient. Correlation for environmental performance rating and that of ROA is 0.68. This is also indication of a strong positive association. The estimated correlation between GOV and ROA is the smallest of 0.43.

In the first model evaluating impact of sustainability reporting on market performance of Coca- Cola, return on asset (ROA) is regressed on OSR, COM, EMP, ENV and GOV.   

The coefficient of OSR in the model is 0.0083. This indicates overall CSR rating positively affects ROA of the company. The regression coefficient associated with independent variable of COM is 0.0012 reflecting positive linkage of COM with ROA.  In the developed model EMP has a positive coefficient with magnitude 0.0274. This implies EMP is positively related with ROA. ENV also has a positive consequence for ROA with regression coefficient being 0.0168. Only GOV has a negative relation with ROA. The associated coefficient value is -0.0095. Not all the considered determinant of ROA is statistically significant. Among the five included sustainability reporting indicator only two namely overall CSR rating and Employee performance rating are statically significant.

In the second model for evaluating impact of sustainability reporting on market performance of Coca- Cola, return on equity (ROE) is regressed on OSR, COM, EMP, ENV and GOV.  

The coefficient of OSR in the model is 0.0044. This indicates overall CSR rating positively affects ROE of the company. The regression coefficient associated with independent variable of COM is – 0.0025 reflecting inverse linkage of COM with ROE.  In the developed model, EMP has a positive coefficient with magnitude 0.0433. This implies EMP is positively related with ROE. ENV also has a positive consequence for ROE with regression coefficient being 0.0168. Only GOV has a negative relation with ROE. The associated coefficient value is -0.0291. All the determinant of ROE as considered in the model are not statistically significant. Among the five included sustainability reporting indicator only one namely Employee performance rating is statically significant.

The section discusses the obtained statistical results in relation to developed hypotheses.

The first hypothesis investigates significance of the relationship between sustainability reporting and Return on Assets of the Coca- Cola. Null hypothesis suggests no statistically significant relation exists between sustainability reporting and return on assets of the company.

Return on asset is an indicator of market of a company in the sense that it captures profitability of the company relative to the value of total assets (Fernandez-Feijoo, Romero & Ruiz, 2014). ROA helps investors, managers and business analysts an idea regarding efficiency of the company and its management generating earnings to the investors and shareholders. ROA represents net income as a proportion of total assets (Oikonomou, Brooks & Pavelin, 2014). Higher ROA thus reflects a better performance for the company and vice-versa.

The present paper considers five indicators for sustainability reporting of Coca- Cola. A mixed result has been obtained for evaluating influence of maker sustainability on return on assets of the company. Most of the previous studies support the claim of positive relation of sustainability disclosure with market performance (Elliott et al., 2013). In case of ROA, all the sustainability rating except government performance rating has a positive effect on assets return. That is with increase in sustainability rating of CSR, community performance, employees’ performance and environmental performance, return on assets increases. In case of government performance, higher rating means a lower asset return. The values of coefficients are relatively small implying sustainability reporting has a little impact on ROA. In determining ROA, the two significant variables are employees’ performance rating and overall CSR ratings. Only two dimensions of sustainability reporting thus significantly influence ROA.

The second hypothesis is based on determination of relative significance of sustainability reporting in return on equity (ROE) of Coca – Cola. The null hypothesis here states that sustainability reporting has no statistically significant effect on ROE of the company.

Return on Equity measures market performance of a company from perspective of shareholders (Li et al., 2014). ROE is a measure that represents net income of the firm as a proportion on equity of shareholders. Higher the ROE higher is the net income relative to equity of the shareholders. It reveals the generation of profit with the invested money of the shareholders. Higher ROE implies a better performance of the company (Qiu, Shaukat & Tharyan, 2016).

The general hypothesis aims to find overall sustainability impact on equity return of the company. As different sustainability ratings are considered, a combined result is obtained regarding influence of sustainability on equity return. Except community performance rating all other indices have a positive influence on equity return. That is, higher the rating of CSR, EMP, ENV and GOV higher is the return of equity to the shareholder indicating a good performance. For community performance rating, because of the inverse relation a lower rating means a higher equity return and vice versa. Among the five indicative measures of sustainability disclosure the rating on employees’ performance only has a significant influence on equity return. Rest of the indicators are statistically insignificant.

Conclusion 

The study primarily aims to analyze effect of sustainability on market performance of Coca- Cola. Depending two major indicators of market performance ROA and ROE there are two secondary research questions.

The first question tries to investigate how sustainability disclosure influence ROA of the company. The findings suggest that of the five sustainability disclosure only one indicator (government performance rating) has a negative influence on ROA. Three of the five indicators turn out as statistically insignificant and therefore, cannot be considered as significant determinant of ROA. The two statistically significant variables are CSR reporting and employee performance rating.

The second question attempts to explore how sustainability disclosure influence ROE of the company. The findings suggest that of the five sustainability disclosure only one indicator (community performance rating) has a negative influence on ROA. Four of the five indicators turn out as statistically insignificant and therefore, cannot be considered as significant determinant of ROE. The only statistically significant variables is employee performance rating.

The paper studies data for last fifteen years. The sample size thus is relatively small. Increasing number of years or inclusion of other companies can give a more robust result. This is the first limitation of current research.

The second limitation is consideration of only ROA and ROE as indicator of market performance. Several other indicators indicate market performance of a company. These indicators include sales, profitability and such other measure.

For reporting of sustainability, five indicators are considered. As a result, ambiguous results are obtained for some aspects. Instead of five separate rating, consideration of an overall composite index can provide a more precious and unambiguous result.

The study finds most of the sustainability reporting has a positive impact on ROA and ROE of the company. Of these, employee performance rating has a positive significant influence on both assets and equity return. Higher employees’ performance rating means a higher return and vice versa. The company therefore should focus on improving performance of the employees’ to enhance its market performance.

CSR is also has a positive significant influence on assets return of company. The company thud should focus on accomplishing principles of Corporate Social Responsibility to increase return on assets and hence to improve market performance. 

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