Asymmetric Analysis of the Effects of Sustainability Reporting on Corporate Financial Performance: Evidence from Companies Listed on the Iraq Stock Exchange

Abstract

This study aimed to examine the asymmetric effects of the environmental, social, and governance dimensions of sustainability reporting on the accounting- and market-based financial performance of companies listed on the Iraq Stock Exchange. This applied, ex post facto study was conducted using secondary corporate data. The study population comprised 103 companies registered on the Iraq Stock Exchange, from which eligible companies were examined through purposive sampling based on continuity of listing, availability of financial information, and measurable sustainability scores. Data covering 2018–2023 were obtained from Refinitiv, the official Iraq Stock Exchange database, audited financial statements, annual reports, corporate social responsibility reports, and published sustainability documents. Sustainability reporting was assessed according to Global Reporting Initiative indicators and environmental, social, and governance dimensions. Financial performance was measured using return on assets, adjusted return on assets, Tobin’s Q, and enterprise value. Principal component analysis, partial least squares structural equation modeling, fuzzy-set qualitative comparative analysis, and contrarian-case analysis were employed to examine the proposed relationships and identify asymmetric configurations. The structural model showed that the social, governance, economic, and environmental indicators had significant positive effects on corporate sustainability, with t-values of 4.821, 5.028, 2.555, and 2.517, respectively; all paths were significant at the 0.05 level. Sustainability had a significant positive effect on market-based financial performance (t=9.365, p<0.001), while firm size also significantly predicted market-based financial performance (t=2.701, p=0.007). Contrarian-case analysis indicated that approximately 34% of observations concerning environmental performance and return on assets departed from the expected linear pattern. Specifically, 18.6% of companies combined low environmental scores with high financial performance, whereas 15.7% combined high environmental scores with low financial performance. Comparable contradictory configurations were observed for the other sustainability dimensions and financial indicators, confirming the asymmetric and context-dependent nature of the relationships. Sustainability reporting can enhance corporate financial performance; however, its effect depends on the configuration of sustainability dimensions, firm size, industry characteristics, and market conditions. Integrated and context-specific sustainability strategies are therefore more likely to create financial value than symbolic, fragmented, or compliance-oriented disclosures.