The Influence of Sanctions on Corporate Reporting Behaviour: International Evidence

ABSTRACT This study investigates the impact of sanctions on corporate reporting behaviour, encompassing both financial and sustainability reporting. Utilising comprehensive data from the Global Sanctions Database (GSDB), the study reveals an asymmetrical effect of sanctions on corporate reporting behaviours. Specifically, our findings reveal a negative relationship between sanctions and earnings management, suggesting a more conservative and transparent approach to financial reporting during sanction periods. However, the relationship between sanctions and the quality of sustainability reporting is significantly negative, indicating a decline in sustainability reporting quality during times of sanctions. Furthermore, the study provides evidence that EU sanctions have a stronger influence on both types of reporting compared to US sanctions. The results also break down the effects of each type of sanction on corporate reporting, indicating that financial and trade sanctions have a significant impact, while military and other types of sanctions do not show a significant effect. Drawing from signalling theory, corporate reports serve to signal stakeholders about a firm's behaviour and alleviate the information asymmetry between managers and other stakeholders. Consequently, our study contributes to signalling theory by illustrating that distinct signals are conveyed through different reports during uncertain periods, such as sanctions.