Financial Reporting Conservatism and Voluntary Non-Financial Disclosure: Case from Corporate Social Responsibility Disclosure

• In Event: Financial Accounting and Reporting 7

Abstract

This paper examines whether a firm’s degree of conservatism in financial reporting affects the choice of voluntary non-financial corporate social responsibility (CSR) disclosure and its economic consequences. Prior theoretical and empirical studies suggest that the amount and credibility of voluntary disclosure vary depending on the degree of financial reporting conservatism. Using CSR disclosure data distributed through the media, we find that firms adopting less conservative financial reporting policies are more likely to disclose CSR information. Further analyses show that market reactions to CSR disclosure are stronger when a firm’s financial reporting is less conservative. Our evidence suggests that financial reporting conservatism is an important mechanism that affects the qualitative and quantitative nature of non-financial CSR disclosure, and financial reporting policy should be considered in tandem with voluntary disclosure policy for a better understanding of informativeness of corporate disclosure.

Authors

• Seong Cho, Oakland University

• Cheol Lee, Wayne State University

• Pyung K. Kang, Wayne State University

• Chung Park, Aju University