In this article, we examine the empirical association between corporate governance (CG) and corporate social responsibility (CSR) engagement by investigating their causal effects. Employing a large and extensive US sample, we first find that while the lag of CSR does not affect CG variables, the lag of CG variables positively affects firms’ CSR engagement, after controlling for various firm characteristics. In addition, to examine the relative importance of stakeholder theory and agency theory regarding the associations among CSR, CG, and corporate (...) financial performance (CFP), we also examine the relation between CSR and CFP. After correcting for endogeneity bias, our results show that CSR engagement positively influences CFP, supporting the conflict-resolution hypothesis based on stakeholder theory, but not the CSR overinvestment argument based on agency theory. Furthermore, firms’ CSR engagement with the community, environment, diversity, and employees plays a significantly positive role in enhancing CFP. (shrink)

Some argue that managers over-invest in corporate social responsibility (CSR) activities to build their personal reputations as good global citizens. Others claim that CEOs strategically choose CSR activities to reduce the probability of CEO turnover in a future period through indirect support from activists. Still others assert that firms use CSR activities to signal their product quality. We find that firms use governance mechanisms, along with CSR engagement, to reduce conflicts of interest between managers and non-investing stakeholders. Employing a large (...) and extensive sample of firms within Russell 2000, S& 500 and Domini 400 indices during the 1993-2004 period, we find that consistent with the conflict-resolution hypothesis, the CSR choice is positively associated with governance characteristics, including board independence, institutional ownership, and analyst following. In addition, after correcting for endogeneity of CSR engagement, our results show that CSR engagement positively influences operating performance and firm value, supporting the conflict-resolution hypothesis as opposed to the over-investment and strategic-choice arguments. We find only a weak support of the product-signaling hypothesis as a major motive of CSR engagement. (shrink)

The aim of this paper is to analyze whether a number of firm and industry characteristics, as well as media exposure, are potential determinants of corporate social responsibility (CSR) disclosure practices by Spanish listed firms. Empirical studies have shown that CSR disclosure activism varies across companies, industries, and time (Gray et al., Accounting, Auditing & Accountability Journal 8(2), 47–77, 1995; Journal of Business Finance & Accounting 28(3/4), 327–356, 2001; Hackston and Milne, Accounting, Auditing & Accountability Journal 9(1), 77–108, 1996; Cormier (...) and Magnan, Journal of International Financial Management and Accounting 1(2), 171–195, 2003; Cormier et al., European Accounting Review 14(1), 3–39, 2005), which is usually justified by reference to several theoretical constructs, such as the legitimacy, stakeholder, and agency theories. Our findings evidence that firms with higher CSR ratings present a statistically significant larger size and a higher media exposure, and belong to more environmentally sensitive industries, as compared to firms with lower CSR ratings. However, neither profitability nor leverage seem to explain differences in CSR disclosure practices between Spanish listed firms. The most influential variable for explaining firms’ variation in CSR ratings is media exposure, followed by size and industry. Therefore, it seems that the legitimacy theory, as captured by those variables related to public or social visibility, is the most relevant theory for explaining CSR disclosure practices of Spanish listed firms. (shrink)

Corporate social responsibility (CSR) is a dramatically expanding area of activity for managers and academics. Consumer demand for responsibly produced and fair trade goods is swelling, resulting in increased demands for CSR activity and information. Assets under professional management and invested with a social responsibility focus have also grown dramatically over the last 10 years. Investors choosing social responsibility investment strategies require access to information not provided through traditional financial statements and analyses. At the same time, a group of mainstream (...) institutional investors has encouraged a movement to incorporate environmental, social, and governance information into equity analysis, and multi-stakeholder groups have supported enhanced business reporting on these issues. The majority of research in this area has been performed on European and Australian firms. We expand on this literature by exploring the CSR disclosure practices of a size- and industry-stratified sample of 50 publicly traded U.S. firms, performing a content analysis on the complete identifiable public information portfolio provided by these firms during 2004. CSR activity was disclosed by most firms in the sample, and was included in nearly half of public disclosures made during that year by the sample firms. Areas of particular emphasis are community matters, health and safety, diversity and human resources (HR) matters, and environmental programs. The primary venues of disclosure are mass media releases such as corporate websites and press releases, followed closely by disclosures contained in mandatory filings. Consistent with prior research, we identify industry effects in terms of content, emphasis, and reporting format choices. Unlike prior research, we can offer only mixed evidence on the existence of a size effect. The disclosure frequency and emphasis is significantly different for the largest one-fifth of the firms, but no identifiable trends are present within the rest of the sample. There are, however, identifiable size effects with respect to reporting format choice. Use of websites is positively related to firm size, while the use of mandatory filings is negatively related to firm size. Finally, and also consistent with prior literature, we document a generally self-laudatory tone in the content of CSR disclosures for the sample firms. (shrink)

This study provides evidence on the relationship between corporate social responsibility and firms’ credit ratings. We find that credit rating agencies tend to award relatively high ratings to firms with good social performance. This pattern is robust to controlling for key firm characteristics as well as endogeneity between CSR and credit ratings. We also find that CSR strengths and concerns influence credit ratings and that the individual components of CSR that relate to primary stakeholder management matter most in explaining firms’ (...) creditworthiness. Overall, our results suggest that CSR performance conveys important non-financial information that rating agencies are likely to use in their evaluation of firms’ creditworthiness, and that CSR investments—particularly those that extend beyond compliance behavior to reflect what is desired by society—can lead to lower financing costs resulting from higher credit ratings. (shrink)

This paper examines voluntary corporate social responsibility (CSR) reporting as a form of moral discourse. It explores how alternative stakeholder perspectives lead to differing perceptions of the process and content of responsible reporting. We contrast traditional stakeholder theory, which views stakeholders as external parties having a social contract with corporations, with an emerging perspective, which views interaction among corporations and constituents as relational in nature. This moves the stakeholder from an external entity to one that is integral to corporate activity. (...) We explore how these alternative stakeholder perspectives give rise to different normative demands for stakeholder engagement, managerial processes, and communication. We discuss models of CSR reporting and accountability: EMAS, the ISO 14000 series, SA8000, AA1000, the Global Reporting Initiative, and the Copenhagen Charter. We explore how these models relate to the stakeholder philosophies and find that they are largely consistent with the traditional atomistic view but fall far short of the demands for moral engagement prescribed by a relational stakeholder perspective. Adopting a relational view requires stakeholder engagement not only in prescribing reporting requirements, but also in discourse relating to core aspects of the corporation such as mission, values, and management systems. Habermas’ theory of communicative action provides guidelines for engaging stakeholders in this moral discourse. (shrink)

Corporate management is torn between either focusing solely on the interests of stockholders or taking into account the interests of a wide spectrum of stakeholders. Of course, there need be no conflict where taking the wider view is also consistent with maximising stockholder wealth. In this paper, we examine the extent to which a conflict actually exists by examining the relationship between a company's positive and negative corporate social responsibility activities and equity performance. In general, we find little evidence to (...) suggest that managers taking a wider stakeholder perspective will jeopardise the interest of its stockholders. However, our findings do suggest that the market is not only influenced by the independent CSR activities, but also the totality of these activities and that the facets that they value do vary over time. It seems that most recently, the market has valued most firms that satisfied minimum requirements in the areas of diversity and environmental protection but were most proactive in the area of employee-relations. (shrink)

Existing research on the financial implications of corporate social responsibility (CSR) for firms has predominantly focused on positive aspects of CSR, overlooking that firms also undertake actions and initiatives that qualify as negative CSR. Moreover, studies in this area have not investigated how both positive and negative CSR affect the financial risk of firms. As such, in this research, the authors provide a framework linking both positive and negative CSR to idiosyncratic risk of firms. While investigating these relationships, the authors (...) also analyze the moderating role of financial leverage of firms. Overall, analysis of secondary information for firms from multiple industries over the years 2000–2009 shows that CSR has a significant effect on the idiosyncratic risk of firms, with positive CSR reducing risk and negative CSR increasing it. Results also show that the reduction in risk from positive CSR is not guaranteed, with firms having high levels of financial leverage witnessing lower idiosyncratic risk reduction. (shrink)

This research examines the relationship between corporate social responsibility (CSR) and company stock valuation across three regions of the world. After a brief introduction, the article gives an overview of the evolving definition of CSR as well as a discussion of the ways in which this construct has been operationalized. Presentation of the potential impact of corporate social performance on firm financial performance follows, including investor characteristics, the rationale behind their choices, and their influence on the marketplace for securities worldwide. (...) The unique method used to select socially responsible investments is then provided that also includes a description of the quantitative techniques employed in the analyses. Results are offered subsequently, and the close describes implications for global enterprises as socially responsible investments. (shrink)

This study examines the impact that research and development (R&D) intensity has on corporate social responsibility (CSR). We base our research on the resource-based view (RBV) theory, which contributes to our analysis of R&D intensity and CSR because this perspective explicitly recognizes the importance of intangible resources. Both R&D and CSR activities can create assets that provide firms with competitive advantage. Furthermore, the employment of such activities can improve the welfare of the community and satisfy stakeholder expectations, which might vary (...) according to their prevailing environment. As expressions of CSR and R&D vary throughout industries, we extend our research by analysing the impact that R&D intensity has on CSR across both manufacturing and non-manufacturing industries. Our results show that R&D intensity positively affects CSR and that this relationship is significant in manufacturing industries, while a non-significant result was obtained in non-manufacturing industries. (shrink)

In the last two decades, there has been a pronounced growth of CSR rating agencies that assess corporations based on their social and environmental performance. This article investigates the impact of CSR ratings on the behavior of individual corporations. To what extent do corporations adjust their behavior based on how they rank? Our primary finding is that being dropped from a CSR ranking appears to do little to encourage firms to acknowledge and address problems related to their social and environmental (...) performance. Specific rankings appear not to have a widespread effect of influencing firms to acknowledge negative CSR events and publicly present plans and actions to address them. Whether firms are well or poorly ranked, they appear to focus on and publicly discuss their “positive” CSR activities. We discuss the wider significance of these results as well as the overall significance of CSR rankings for a global economy. (shrink)

The purpose of this paper is to provide a constructive criticism of Corporate Social Responsibility (CSR) standards. After pointing out a number of benefits and limitations in the effectiveness of CSR standards, both from a theoretical point of view and in the light of empirical evidence, we formulate and discuss a Paradox of CSR standards: despite being well-intended, CSR standards can favor the emergence of a thoughtless, blind and blinkered mindset which is counterproductive of their aim of enhancing the social (...) responsibility of the organization. We analyze three problems that might underlie the Paradox—namely the problem of deceptive measurements; the problem of responsibility erosion and the problem of blinkered culture. We apply the philosophical tradition of American Pragmatism to reflect on these issues in relation to different types of existing standards, and conclude by suggesting a number of considerations that could help both CSR standards developers and users to address the Paradox. (shrink)

This paper compares between the evolution of financial reporting and corporate social responsibility reporting. Our comparison follows a framework of seven factors for exploring comparative accounting history put forth by Carnegie and Napier :689–718, 2002): Period, Places, People, Practices, Propagation, Products, and Profession. Using this framework allows for a comparison of similarities and differences as to how both types of reporting have evolved. Some of the defining moments in the evolution of financial reporting have yet to take place in the (...) development of CSR reporting; such as an event that legitimizes a CSR reporting standard or gives CSR reporting global recognition. The evolutionary process may not follow the same path as financial reporting did due to the varying stakeholders involved. However, there are enough similarities that still make the evolution of financial reporting a useful comparative tool to analyze the potential growth and development of CSR reporting. Financial reporting has evolved into a comparable and reliable market-based resource over the last 100 years. Relative to this timeline CSR reporting is still in its infancy. CSR reporting has come a long way since early reports were first issued, but there remain many deficiencies in comparability, consistency, reliability, and relevance. The results of this comparison provide some insight on the possible future development of CSR reporting. Our goal is that this paper contributes to an understanding of CSR reporting’s past and provides insights into CSR reporting’s present and future. (shrink)

This paper investigates the effect of corporate social responsibility (CSR) on firm value and seeks to identify the source of that value, by disaggregating the effects on forecasted profitability, long-term growth and the cost of capital. The study explores the possible risk (reducing) effects of CSR and their implications for financial measures of performance. For individual dimensions of CSR, in general strengths are positively valued and concerns are negatively valued, although the effect is not universal across all dimensions of CSR. (...) We show that these valuation effects are principally driven by CSR performance associated with better long run growth prospects, with an additional minor contribution made by a lower cost of equity capital. (shrink)

This paper examines voluntary corporate social responsibility (CSR) reporting as a form of moral discourse. It explores how alternative stakeholder perspectives lead to differing perceptions of the process and content of responsible reporting. We contrast traditional stakeholder theory, which views stakeholders as external parties having a social contract with corporations, with an emerging perspective, which views interaction among corporations and constituents as relational in nature. This moves the stakeholder from an external entity to one that is integral to corporate activity. (...) We explore how these alternative stakeholder perspectives give rise to different normative demands for stakeholder engagement, managerial processes, and communication. We discuss models of CSR reporting and accountability: EMAS, the ISO 14000 series, SA8000, AA1000, the Global Reporting Initiative, and the Copenhagen Charter. We explore how these models relate to the stakeholder philosophies and find that they are largely consistent with the traditional atomistic view but fall far short of the demands for moral engagement prescribed by a relational stakeholder perspective. Adopting a relational view requires stakeholder engagement not only in prescribing reporting requirements, but also in discourse relating to core aspects of the corporation such as mission, values, and management systems. Habermas' theory of communicative action provides guidelines for engaging stakeholders in this moral discourse. (shrink)

Being a controversial industry, oil companies turn to corporate social responsibility (CSR) as a means to obtain legitimacy. Adopting a case study methodology, this research examines the characteristics of CSR strategies and CSR communication tactics of six oil companies by analyzing their 2011–2012 web site content. We found that all six companies engaged in CSR activities addressing the needs of various stakeholders and had cross-sector partnerships. CSR information on these companies’ web sites was easily accessible, often involving the use of (...) multimedia technologies and sometimes social media platforms. Furthermore, to boost the credibility of their CSR messages, these companies utilized a variety of tactics, such as factual arguments and two-sided messages. In sum, this research unveils the interconnectedness among business strategy, CSR practices, and CSR communication in oil companies’ attempt to gain legitimacy in an environment of controversy. The article ends with a discussion of the theoretical and practical implications of the research findings. (shrink)

Although the composition of the board of directors has important implications for different aspects of firm performance, prior studies tend to focus on financial performance. The effects of board composition on corporate social responsibility (CSR) performance remain an under-researched area, particularly in the period following the enactment of the Sarbanes-Oxley Act of 2002 (SOX). This article specifically examines two important aspects of board composition (i.e., the presence of outside directors and the presence of women directors) and their relationship with CSR (...) performance in the Post-SOX era. With data covering over 500 of the largest companies listed on the U.S. stock exchanges and spanning 64 different industries, we find empirical evidence showing that greater presence of outside and women directors is linked to better CSR performance within a firm’s industry. Treating CSR performance as the reflection of a firm’s moral legitimacy, our study suggests that deliberate structuring of corporate boards may be an effective approach to enhance a firm’s moral legitimacy. (shrink)

Based on an inductive study we analyse the role of the investor relations (IR) function in the light of rising investor concern about corporate social responsibility (CSR). The study draws on interviews with IR professionals in twenty firms. It highlights their awareness of CSR issues as well as their assessment of concern among mainstream investors and socially responsible investors (SRIs). From these findings we develop suggestions on how the IR function is moving from a mere “broadcasting” mode regarding CSR issues (...) into a much more interactive mode of relationship management. (shrink)

The question of whether corporate social responsibility (CSR) has a positive impact on firm value has been almost exclusively analysed from the perspective of the stock market. We have therefore investigated the relationship between the valuation of Euro corporate bonds and the standards of CSR of mainly European companies for the first time in this article. Generally, the debt market exhibits a considerable weight for corporate finance, for which reason creditors should basically play a significant role in the transmission of (...) CSR into the valuation of financial instruments. Given that socially responsible firms are often regarded as economically more successful and less risky, they should have lower risk premia. The results of the empirical analysis, however, reveal that based on an extensive data panel the risk premium for socially responsible firms -according to the classification by SAM Group — was ceterius paribus higher than for non-socially responsible companies. However, only one case of the models investigated was weakly significant. Thus, largely the relationship has to be classified as marginal; so CSR has apparently not yet been incorporated into the pricing of corporate bonds. (shrink)

The question of whether corporate social responsibility (CSR) has a positive impact on firm value has been almost exclusively analysed from the perspective of the stock market. We have therefore investigated the relationship between the valuation of Euro corporate bonds and the standards of CSR of mainly European companies for the first time in this article. Generally, the debt market exhibits a considerable weight for corporate finance, for which reason creditors should basically play a significant role in the transmission of (...) CSR into the valuation of financial instruments. Given that socially responsible firms are often regarded as economically more successful and less risky, they should have lower risk premia. The results of the empirical analysis, however, reveal that based on an extensive data panel the risk premium for socially responsible firms – according to the classification by SAM Group – was ceterius paribus higher than for non-socially responsible companies. However, only one case of the models investigated was weakly significant. Thus, largely the relationship has to be classified as marginal; so CSR has apparently not yet been incorporated into the pricing of corporate bonds. (shrink)