Strength of auditing and reporting standards, ethical behavior of firms and sustainability: a cross-country investigation

Purpose This paper aims to examine the association between the strength of auditing and reporting standards (SARS, hereafter) and sustainability and investigates whether ethical behavior of firms moderates relationship between SARS and sustainability. Design/methodology/approach The sample consists of 500 country-year observations over the period of 2014-2017. Sustainability is collected from the Global Sustainable Competitiveness Index Reports for 2014, 2015, 2016 and 2017, while SARS and ethical behaviors are collected from the Global Competitiveness Reports for the same years. Findings The findings of this study suggest that the SARS is associated with sustainability. Similarly, ethical behavior of firms has a positive and significant effect on sustainability. When testing for the moderating effect of ethical behavior of firms on the association between SARS and sustainability, the results show that the positive association SARS becomes positive and more significant for countries where firms operate with high ethical behaviors, while the association becomes insignificant for settings where firms operate with low ethical behaviors. Originality/value The findings emphasize the role played by SARS and business ethics in improving sustainability. These results may have policy implications for governments aiming to improve sustainability by strengthening auditing and reporting standards and enforcing laws obliging firms to act ethically.