The Formation of Reputation in CSR Disclosure: The Role of Signal Transmission and Sensemaking Processes of Stakeholders

Abstract

A growing number of companies are issuing corporate social responsibility (CSR) reports to publicize their commitment to sustainable development. However, skepticism remains among stakeholders about firms’ CSR information, which could hinder the success of worldwide CSR campaigns. Our paper examines mechanisms of how CSR disclosure resonates with stakeholders and influences their attitudes towards firms. Extending the current knowledge of CSR signaling effects, this paper provides a framework illustrating the interplay between CSR signaling properties and readers’ sensemaking processes, thereby predicting how corporate reputation is shaped through CSR communication. In order to test our theoretical hypotheses, a survey was conducted on 53 firms with 1521 respondents. The results show that the better the readers’ comprehension of a CSR report is, the stronger the signals of authenticity and corporate social performance (CSP) they perceive, the better the report value and value fit are recognized, and eventually, the more trust they hold for the firm. The relationship between comprehension of CSR reports and trust is partially mediated by the signaling-sensemaking process. Our research contributes to the literature on micro-foundations of strategic CSR by applying signaling theory in the context of CSR disclosure. The research findings have practical implications for firms’ CSR disclosure strategies.