Are CSR Disclosures Value Relevant? Cross-Country Evidence

• In Event: Corporate Social Responsibility

Abstract

Fombrun and Shanley (1990) argue that corporate social responsibility (CSR) plays an important role in reputation building. In this study, we examine whether firm-initiated disclosures about CSR are value relevant. While CSR disclosures may be informative, we cannot ex ante rule out the possibility that they are opportunistic and provide little incremental information. To increase the power of our tests, we improve on prior research in four ways: (1) we focus on the unexpected portion of CSR disclosure, (2) we examine Tobin’s Q rather than short-term performance, (3) we use cross-country data from 21 countries, and (4) we use a comprehensive disclosure score that includes all CSR disclosures in the public domain (e.g., corporate website, stand-alone reports, annual report). If CSR activities are value-adding, as Fombrun and Shanley (1990) suggest, and if unexpected CSR disclosures are informative, we should observe a positive relation between unexpected CSR disclosure and firm value. Consistent with this hypothesis, we find that firm value increases with unexpected CSR disclosure. We also find that, while countries with strong nation-level governance and institutions promote more CSR disclosures, the valuation of a unit increase in unexpected CSR disclosures is higher in countries with weaker governance and institutions.

Authors

• Steven F Cahan, The University of Auckland

• Charl de Villiers, University of Waikato

• Debra C Jeter, Vanderbilt University

• Vic Naiker, Monash University

• Chris J van Staden, University of Canterbury