Opportunistic CSR Assurance

Abstract

Companies that have poor corporate social responsibility (CSR) reporting quality despite purchasing external assurance are more likely to be opportunistic greenwashers. Using more than 39,000 firm-year observations from 20 countries we show that such opportunistic companies exhibit their opportunistic behaviour in several ways. They are more likely to engage in real activity-based earnings management and have higher information asymmetry after controlling for the endogeneity of CSR reporting assurance purchase. However, no obvious market failure is documented as we find that investors value the opportunistic companies relatively lower and the indexer is less likely to include them in a sustainable index. Furthermore, opportunistic assurance behaviours are more prominent in weaker investor-protection countries in which we also confirm that external assurance has a weaker effect on improving the reporting quality of these opportunistic companies. The key policy implication is that more regulatory efforts should be put into improving the oversight of the assurance standard and quality.