Audited Financial Reporting and Voluntary Disclosure of Corporate Social Responsibility (CSR) Reports

Abstract

ABSTRACTPrior studies show that corporate social responsibility (CSR) reporting is informative to investors but lacks credibility. This study examines whether a commitment to audits of financial outcomes, proxied by audit fees, is associated with greater CSR reporting credibility. We find that audit fees are positively associated with the likelihood of standalone CSR report issuance, and this positive association becomes stronger when managers perceive a greater need for credibility, i.e., when CSR reports are longer or issued with external assurance, when firms have strong CSR concerns, and when reports are issued sporadically. Corroborating our results, we find that CSR reports issued by firms committing to high audit fees accelerate the incorporation of future earnings information into current stock price. Taken together, our findings suggest that a commitment to higher financial reporting quality has the potential to bring positive externality to firms' nonfinancial disclosures and ultimately affects the issuance of CSR reports.