The Role of Information Asymmetry in CSR Reporting: A Comparison of Publicly-Traded and Privately-Held Firms

Abstract

There is no consensus in the literature regarding what motivates firms to voluntarily publish corporate social responsibility (CSR) reports or who are the intended audiences of such reports. To help address this gap in the literature, I test whether the degree of information asymmetry between the firm and its owners is a significant factor contributing to the publication of CSR reports. The study is the first to analyze the reporting frequencies of both publicly-traded firms and privately-held firms whose ownership is subject to less information asymmetry. Using a sample of 239 of the largest private companies in the U.S. matched with publicly-traded firms, the effect of ownership structure on CSR reporting frequency is tested using logistic regression. Factors suggested by stakeholder and legitimacy theories, including firm size, firm visibility, customer power, and employee power are also tested. Results indicate that private firms are much less likely to publish a CSR report than similar public firms. Public firms are also found to follow the Global Reporting Initiative guidelines at a higher rate than private firms, in-keeping with a greater need to signal report quality to dispersed investors. Private firms reporting to the SEC because they have over 300 shareholders, anticipate an IPO, or have publicly-traded debt are found to be similar to public firms in their reporting behavior. Since the information environment of these firms represents a middle-ground between public companies and typical private firms, their reporting behavior reinforces the argument that information asymmetry is a motivation for voluntary CSR disclosure.