Does Corporate Governance Drive the Narrative Tone of Sustainability Reporting?

Abstract

Extensive research on corporate governance has led to a greater focus on disclosure (financial and narrative) in sustainability reporting, with the company’s primary goal of winning over and maintaining the support of stakeholders to gain competitive advantage. Managers could choose to present information using a qualitative approach rather than a quantitative one, manipulate the rhetoric, and influence investors’ perceptions. This study investigates whether corporate governance influences the tendency of companies to use particular textual narratives, as part of impression management techniques, to expose a favourable projection of overall activity. Three specific characteristics measure the propensity to employ impression management in sustainability reporting, while corporate governance is quantified considering board gender diversity. Additionally, company-level control variables are included. Research hypotheses are asserted in line with previous literature and tested based on a sample of non-financial companies from Eastern European countries, for the time frame between 2022 and 2023.  Data on narrative tone is collected using textual analysis of sustainability reports, while corporate governance characteristics and control variables are extracted from the Tomson Reuters Eikon database. Descriptive statistics, correlation analysis, and multilevel regression estimation are employed to analyse the panel data. Mixed findings are highlighted, depending on the proxy used to measure impression management. They show that textual characteristics of sustainability reports are impacted by corporate governance. Empirical evidence emphasises that in boards with greater representation of women, the tendency of impression management strategies in the narrative tone of sustainability disclosure decreases. Women directors are associated with more balanced, precise, and clear, but not extensive reports. Results may represent an original and valuable resource for academic and business environments. First, this study adds to the existing literature and contributes to the debate on corporate governance mechanisms from the perspective of impression management, as a basis for present and future research horizons. Second, due to a thorough understanding of the tone of narrative disclosure, business representatives, regulators, and policymakers will be fully aware of potential opportunistic behaviours, as well as corporate governance mechanisms that exert significant influence and could lead to high-quality reporting. Third, impression management measurements as well as sample specifics and methodological insights support the originality of the investigation.