CSR DISCLOSURE AND FINANCIAL PERFORMANCE – Project topics materials

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BACKGROUND

Corporate social responsibility (CSR) is a collective term for environmental, social and ethical activities. Some firms refer to “corporate social responsibility” reporting, while others prefer the terms “sustainability” or “corporate responsibility” reporting (Cohen & Simnett 2015; KPMG 2013a). CSR assurance refers to third-party (external) assurance statements on the CSR information provided by a firm. CSR reporting in the context of this study refers to both CSR disclosure and the disclosure of CSR assurance statements. Some form of CSR disclosure is now required in many countries, for example, in South Africa (IoDSA 2009), for EU-domiciled firms from 2018 onwards (European Commission 2014), as well as in Denmark, France, India, Indonesia, Japan, Malaysia, Nigeria, Norway, Singapore, the UK and the US (KPMG 2013a:25). Even though CSR disclosure has become a common business practice (KPMG 2011), what and how much is to be disclosed is still largely discretionary – not only for CSR disclosure in general, but also for Integrated Reports (Cahan, De Villiers, Jeter, Naiker & Van Staden 2016; Deloitte & Touche 2011; IIRC & IFRS Foundation 2013; IIRC & SASB 2013; KPMG 2013a; Kumarasinghe, Will & Hoshino 2018; PWC 2013; Verbeeten, Gamerschlag & Möller 2017). Given the discretion that firms have regarding CSR disclosure, there are some concerns regarding the completeness and credibility of the information provided (Ackers 2015; Birkey, Michelon, Patten & Sankara 2016; Bouten, Everaert, Van Liedekerke, De Moor & Christiaens 2011; Cho, Michelon, Patten & Roberts 2015; Kolk & Perego 2010; Merkl-Davies & Brennan 2007; Park & Brorson 2005). CSR assurance has the potential to enhance the credibility of CSR disclosure (Casey & Grenier 2015; Cohen & Simnett 2015; Hodge, Subramaniam & Stewart 2009; Holder-Webb, Cohen, Narth & Wood 2009; KPMG 2013a; Michelon, Patten & Romi 2018; Simnett, Vanstraelen & Chua 2009). However, CSR assurance practices have also been criticised in the literature. Such assurance is not always an independent process, conducted without restrictions by management (O’Dwyer & Owen 2005; Pinsker & Wheeler 2009). Moreover, there is not yet a generally accepted standard for CSR assurance, although several assurance standards are used (Hodge et al. 2009; Salman 2016:21). Another factor which has elicited criticism and makes comparison between firms difficult is the large amount of variability in terms of the format of assurance statements and the scope of assurance engagements (Hodge et al. 2009), as well as the variability in assurance providers. Providers range from large audit firms to other specialists (Ackers & Eccles 2015; Brown-Liburd & Zamora 2015; Casey & Grenier 2015; Cheng, Green & Ko 2015; O’Dwyer & Owen 2005; Peters & Romi 2015; Pflugrath, Roebuck & Simnett 2011). In addition, firms that have pre-existing CSR credibility issues (Simnett et al. 2009) have added incentives to provide CSR assurance voluntarily to improve the credibility of their CSR disclosures (Brown-Liburd & Zamora 2015; Cheng et al. 2015; Hodge et al. 2009; Pflugrath et al. 2011; Reimsbach, Hahn & Gȕrtȕrk 2018). CSR disclosure has become part of many large firms’ CSR reporting practices, as KPMG’s (2008, 2011, 2013, 2015) surveys show. During the earlier years investigated by KPMG, CSR disclosure mostly took the form of stand-alone CSR reports, but the last few surveys by KPMG reveal a move to include CSR information in the annual report. KPMG (2015) reports that only 9% of its N100 sample firms (the N100 firms represent the 100 largest firms in each of the different countries included in the KPMG survey, based on revenue) included CSR information in their 2008 annual reports. The percentage grew to 20% in 2011, to 51% in 2013 and to 56% in 2015. In respect of CSR assurance, KPMG reports that 42% of the N100 firms provided assurance in 2015 (KMPG 2015), compared to 39% in 2008, 38% in 2011, and 38% in 2013 (KPMG 2013a).

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CONTENTS :

Declaration
Acknowledgements
Abstract
CHAPTER 1: INTRODUCTION
- 1.1 BACKGROUND
- 1.2 FOCUS OF THE STUDY
  - 1.2.1 Prior literature
  - 1.2.2 Research objectives
- 1.3 THEORETICAL FRAMEWORK
- 1.4 SAMPLE AND RESEARCH DESIGN
  - 1.4.1 Sample
  - 1.4.2 Research design
- 1.5 DELIMITATIONS
- 1.6 RESULTS
- 1.7 ORGANISATION OF THE THESIS
CHAPTER 2: LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
- 2.1 INTRODUCTION
- 2.2 BACKGROUND TO THE STUDY
  - 2.2.1 CSR disclosure
  - 2.2.2 CSR assurance
- 2.3 CSR DISCLOSURE AND FINANCIAL PERFORMANCE
- 2.3.1 Literature review on CSR disclosure and financial performance
- 2.3.2 Theory and hypothesis development
- 2.4 CSR ASSURANCE AND FINANCIAL PERFORMANCE
  - 2.4.1 Literature review on CSR assurance and financial performance
  - 2.4.2 Theory and hypothesis development
- 2.5 CONCLUSION
CHAPTER 3: SAMPLE AND RESEARCH DESIGN
- 3.1 INTRODUCTION
- 3.2 SAMPLE
- 3.3 RESEARCH DESIGN – CSR DISCLOSURE
  - 3.3.1 Measures of CSR disclosure
  - 3.3.2 Association with market-based measures of financial performance
  - 3.3.3 Association with accounting-based measures of financial performance
  - 3.3.4 Additional tests
- 3.4 RESEARCH DESIGN – CSR ASSURANCE
  - 3.4.1 Measures of CSR assurance
  - 3.4.2 Association with financial performance
  - 3.4.3 Additional tests
  - 3.4.4 CSR disclosure and CSR assurance
- 3.5 CONCLUSION
CHAPTER 4: RESULTS – ASSOCIATION BETWEEN CSR DISCLOSURE AND FINANCIAL PERFORMANCE
- 4.1 INTRODUCTION
- 4.2 MARKET-BASED MEASURES – MAIN EFFECTS
  - 4.2.1 Share price
  - 4.2.2 Market-to-book ratio
- 4.3 ACCOUNTING-BASED MEASURES – MAIN EFFECTS
  - 4.3.1 Future cash flows
  - 4.3.2 Future profitability
- 4.4 RESULTS OF ADDITIONAL TESTS
  - 4.4.1 Change analysis
  - 4.4.2 Year interaction effects
  - 4.4.3 Country-level institutional strength
  - 4.4.4 Environmentally sensitive industries
  - 4.4.5 CSR performance and corporate governance
  - 4.4.6 Accounting quality
  - 4.4.7 Country sensitivity
- 4.5 SUMMARY OF FINDINGS
- 4.5.1 Market-based measures of financial performance
- 4.5.2 Accounting-based measures of financial performance
- 4.6 CONCLUSION
CHAPTER 5: RESULTS – ASSOCIATION BETWEEN CSR ASSURANCE AND FINANCIAL PERFORMANCE
- 5.1 INTRODUCTION
- 5.2 MARKET-BASED MEASURES – MAIN EFFECTS
  - 5.2.1 Share price
  - 5.2.2 Market-to-book ratio
  - 5.3 ACCOUNTING-BASED MEASURES – MAIN EFFECTS
  - 5.3.1 Future cash flows
  - 5.3.2 Future profitability
- 5.4 RESULTS OF ADDITIONAL TESTS
  - 5.4.1 Change analysis
  - 5.4.2 Year interaction effects
  - 5.4.3 Country-level institutional strength
  - 5.4.4 Environmentally sensitive industries
  - 5.4.5 CSR performance and corporate governance
  - 5.4.6 Accounting quality
  - 5.4.7 Country sensitivity
- 5.5 SUMMARY OF FINDINGS
  - 5.5.1 Market-based measures of financial performance
  - 5.5.2 Accounting-based measures of financial performance
- 5.6 CSR DISCLOSURE AND CSR ASSURANCE
  - 5.6.1 Market-based measures of financial performance
  - 5.6.2 Accounting-based measures of financial performance
  - 5.6.3 Results of additional tests
- 5.6.4 Summary of findings
- 5.7 CONCLUSION
CHAPTER 6: CONCLUSION
- 6.1 INTRODUCTION
- 6.2 FINDINGS AND INTERPRETATION
  - 6.2.1 Association between CSR disclosure and financial performance
  - 6.2.2 Association between CSR assurance and financial performance
- 6.3 CONTRIBUTION
- 6.4 LIMITATIONS
- 6.5 AREAS FOR FUTURE RESEARCH
- 6.6 CONCLUDING REMARKS
- REFERENCES
- APPENDICES
- APPENDIX A: SAMPLE COMPOSITION
- Appendix A.1: Number of observations per country
- Appendix A.2: Number of observations per country, industry and year
- Appendix A.3: Reconciliation of number of observations in change analysis
- APPENDIX B: MEASURES OF CSR DISCLOSURE AND CSR ASSURANCE
- APPENDIX C: OTHER CONTROL VARIABLES
- Appendix C.1: Firm-level control variables used in the main analyses
- Appendix C.2: Composite measure of country-level institutional strength
- APPENDIX D: SELF-SELECTION BIAS – CSR DISCLOSURE AND CSR
- ASSURANCE