The Effects of qualitative Attributes of Sustainability Reports on Investors Trading Behavior

Sammanfattning: The importance of adopting sustainable measures in running businesses under different sectors is becoming more important. Many companies care more about sustainability these days, while they were considering only their financial goals previously. Companies become aware of their social and environmental impacts and responsibilities. The importance of sustainability also affects the investors’ concern and attention about the firm’s performance. Consequently, respecting sustainability goals has become a motivation for firms to present a good image and legitimate themselves by preparing sustainability reports. In my thesis, I examine the impact of sustainability report’s quality on market liquidity for European listed-firms in the energy sector. I use two qualitative attributes including the readability and specificity of sustainability reports. I measure the readability through the size of report’s file which is a proxy for complexity of reports. Specificity represents the quality of the report, explaining how much the report is assigned to the firm specifically. I use abnormal trading volume as a proxy for market liquidity. I find that less readable reports (bigger reports) has negative impacts on the investors behavior in trading and they are reluctant to trade. On the other hand, more specific reports lead to a higher trading volume in the capital market. I contribute to literature in sustainability reports and textual analysis by using two qualitative attributes in measuring the quality of sustainability reports. My findings are in the interest of investors, firms and regulator to consider the role of sustainability reports on investors’ decision.