Corporate sustainability, earnings persistence and the association between earnings and future cash flows

Using data from Australian listed firms from 2002 to 2018, we found that firms’ sustainability performance is associated with higher future earnings and cash flows. We also revealed that firms’ sustainability performance was positively related to earnings persistence and had a positive effect on the association between earnings and future cash flows. Our findings support resource-based theory and the theoretical argument indicating a positive relationship between firms’ sustainability performance and earnings quality. This paper enriches the literature by showing that firms’ sustainability performance reveals information about their future financial prospects and earnings quality.