Does Corporate Social Responsibility Reduce Information Asymmetry? New Empirical Evidence from Australia

Abstract

In this article, we provide new empirical evidence of the association between corporate social responsibility (CSR) and information asymmetry (IA) within the Australian context. Utilising a novel firm-level dataset of Australian publicly listed firms from EIKON and Australian Securities Exchange, and spanning the period 2004-2014, we examine five key hypotheses based on stakeholder theory. We estimate the information asymmetry model using fixed effect estimator with robust standard errors. We find that CSR performance is negatively associated with information asymmetry. Moreover, we find that the influence of CSR on bid-ask spread is more pronounced for large-sized, strong market power and high debt-to-equity ratio firms. We also find that the negative association between CSR and information asymmetry decreases for firms with high level of equity risk. Overall, our results are robust to alternative measures of CSR and IA, model specification and accounting for endogeneity, thus supporting the stakeholder theory of the negative relationship between CSR and information asymmetry. The findings highlight yet the importance of CSR in firm performance and the need to implement regulatory frameworks that mitigate the negative impact of information asymmetry on investor decision making.