When Does Corporate Social Responsibility Disclosure Affect Investment Efficiency? A New Answer to an Old Question

Rehana Anwar,Jaleel A Malik

doi:10.1177/2158244020931121

Rehana Anwar, Jaleel A Malik

Open Access

https://doi.org/10.1177/2158244020931121

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Journal: SAGE Open	Publication Date: Apr 1, 2020
Citations: 26	License type: CC BY 4.0

Affiliation: Capital University of Science and Technology

Abstract

Prior evidence that firm’s investment behavior is positively affected by its corporate social responsibility (CSR) disclosure, as one of the key CSR areas of the company, leaves unaddressed whether all kinds of disclosure have the same effect. Drawing on stakeholder theory, this study analyzes the issue in a more exhaustive way. A cross-sectional logistic regression model is used to test the hypothesized association, and the results imply that firms’ high (low)-quality disclosure regarding their engagement in CSR activities increases their chances of being from the investment-efficient (inefficient) group. The obtained results conclude that CSR reporting activity is not beneficial for companies unless a meaningful disclosure of sustainability information is made. Our results are robust to using alternative proxies for CSR disclosure quality. This study contributes to the scarce evidence on CSR reporting in Pakistan and provides a useful method for assessing quality of CSR reports.

Highlights

The rise of corporate scandals in Pakistan in the shape of exploitation of workers (Ashraf, 2018) and child labor (Delaney et al, 2017) is the reason behind corporate social responsibility (CSR) coming to the limelight in Pakistan
The plausible reason attributed toward this behavior of Pakistani firms maybe due to the fact that there has been no guideline from Securities and Exchange Commission of Pakistan (SECP) on how to disclose sustainability information
Our findings contend CSR disclosure as a mean to improve firms’ investment behavior when it is substantial because it mitigates information asymmetry, which eventually increases investment behavior of firms

Summary

Introduction

The rise of corporate scandals in Pakistan in the shape of exploitation of workers (Ashraf, 2018) and child labor (Delaney et al, 2017) is the reason behind corporate social responsibility (CSR) coming to the limelight in Pakistan. Using 1,980 firm-year sample observations in the multiple logistic regression model, our findings suggest that only good quality disclosures improve investment efficiency. Hypothesis 2: High-quality CSR disclosure positively affects the investment efficiency of firms.

Results

Conclusion