Internal forces and strategic sustainability reporting practices (SSRP): the perspectives of agency and stakeholder theories

Strategic sustainability reporting practices (SSRP) is an innovative shift from ordinary sustainability reporting to a company's strategic crisis response. During a crisis, companies faced financial constraints, forcing them to focus on short-term survival rather than engage in costly sustainable activities. Companies' decisions on engagement with sustainability initiatives are influenced by relevant internal forces. This study has three research objectives. Firstly, the study examines any significant changes in SSRP between before and during the crisis. Secondly, this study identifies the internal forces that can influence SSRP, including internal governance mechanisms (board size, board independence, female directors and board meetings), ownership structure (directors, family, foreign and government ownership) and financial position (profitability, leverage and slack resources). Thirdly, the study investigates whether enterprise risk management (ERM) can moderate the relationship between internal governance mechanisms and SSRP. The agency and stakeholder theories were applied to discuss the interconnection between related internal forces and SSRP. This study employed a quantitative approach and developed a multidimensional SSRP index to measure disclosure strategy, quality and quantity of sustainability reporting. The sample comprises 1,212 observations of companies listed on the Main Market of Bursa Malaysia from 2018 to 2021, representing two years before and during the COVID-19 pandemic, which served as a proxy for a crisis. The results showed a significant change in SSRP, with better reporting spotted during the pandemic crisis. Most companies applied an information strategy as their key strategic reporting approach to disseminate general sustainability initiatives, but with greater narrative detail during the crisis. The panel data analyses showed that board independence, female directors, and government ownership had significant, positive impacts on SSRP. Meanwhile, ERM positively moderates the relationship between board size and female directors with SSRP. These findings provide a new perspective on the influence of internal forces on companies' disclosure strategies and on the quality and quantity of sustainability reporting, aiming to reduce information asymmetry that causes agency problems and to meet the demands of broad stakeholders. The study's findings can highlight companies' stance on sustainability reporting, regardless of whether they operate in a crisis or non-crisis environment. It also enhances understanding of SSRP disclosure, which benefits management, regulators, and policymakers.