Abstract
Background: Corporate social responsibility (CSR) disclosure is widespread among the largest companies in South Africa due to the listing requirements of the Johannesburg Stock Exchange (JSE). These companies have also increasingly pursued external assurance of their CSR disclosures in recent years. The increased regulation of CSR disclosure and the increased rate of obtaining assurance of these disclosures motivated us to perform our study.Aim: To examine the association between CSR reporting, including both CSR disclosure and CSR assurance, and firm value of large South African companies.Setting: The JSE listing requirements place South Africa, the setting for our study, at the forefront of corporate governance and CSR reporting.Method: Tobin’s Q is used as a measure of firm value. Three measures of CSR disclosure and three of CSR assurance are used in this study. The measures are based on data collected by Klynveld Peat Marwick Goerdeler (KPMG) International on the CSR reporting practices of large South African companies. The sample period for this study coincides with the sample period covered in the KPMG surveys conducted during 2008, 2011 and 2013.Results: No significant association is found between CSR disclosure and firm value. However, a significant negative association is found between CSR assurance and firm value. Additional analysis found that the negative association between firm value and CSR assurance is more significant for companies that are not listed on the Socially Responsible Investment (SRI) index.Conclusion: The results found between CSR disclosure and firm value may suggest that firm value is unaffected by CSR disclosures. Taken together, the findings on CSR assurance and firm value and the additional analysis may suggest that in South Africa managers with negative CSR issues are more likely to obtain assurance on their CSR disclosure. The findings may be of interest to regulators when considering current and future disclosure and assurance requirements for CSR reporting in South Africa, as well as other parts of the world, shareholders when considering investment options, and managers when considering the benefit of certain CSR reporting practices.
Highlights
The King Code of Governance Principles, the King Report on Governance (KING III) and the Johannesburg Securities Exchange (JSE) requirements place South Africa at the forefront of corporate governance and corporate social responsibility (CSR) reporting
By examining whether there is a positive association between CSR disclosure and firm value, and whether the choice to obtain third-party assurance of the CSR report is not associated with firm value, we aim to contribute a comprehensive analysis on the association between CSR disclosure and assurance and firm value in South Africa to the literature
Sensitive industries: Following the example set by De Klerk et al (2015), we examine whether there is a difference between companies in environmentally sensitive industries and companies in other industries with regard to the association between CSR reporting, including both CSR disclosure and CSR assurance, and firm value
Summary
The King Code of Governance Principles, the King Report on Governance (KING III) and the Johannesburg Securities Exchange (JSE) requirements place South Africa at the forefront of corporate governance and corporate social responsibility (CSR) reporting. To manage the related risks and opportunities (De Klerk, De Villiers & Van Staden 2015; KPMG 2013), the extent and detail of these disclosures is not prescribed since it is mandated to ‘apply or explain’ (Du Toit, Van Zyl & Schutte 2017; JSE 2013b) Even in this environment of mandated CSR reporting, the ‘what’ and the ‘how much’ are still left to the discretion of management. Corporate social responsibility (CSR) disclosure is widespread among the largest companies in South Africa due to the listing requirements of the Johannesburg Stock Exchange (JSE). These companies have increasingly pursued external assurance of their CSR disclosures in recent years. We seek to contribute by examining the anticipated value of CSR reporting through testing for an association between CSR reporting (both disclosure and assurance) and firm value
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