the causal links between voluntary csr disclosure and€¦ · of csr voluntary disclosure – the...

1

THE CAUSAL LINKS BETWEEN VOLUNTARY CSR DISCLOSURE A ND INFORMATION ASYMMETRY. THE MODERATING ROLE OF THE S TAKEHOLDER

PROTECTION

Martínez-Ferrero, Jennifer Universidad de Salamanca

Cuadrado-Ballesteros, Beatriz Universidad de Salamanca

García-Sánchez, Isabel-María Universidad de Salamanca

Área temática : h) Responsabilidad Social Corporativa Key words : Disclosure, CSR, voluntary information, information asymmetry, empirical analysis.

1h

2

THE CAUSAL LINKS BETWEEN VOLUNTARY CSR DISCLOSURE A ND INFORMATION ASYMMETRY. THE MODERATING ROLE OF THE S TAKEHOLDER

PROTECTION

Resumen Este trabajo tiene por objetivo demostrar si aquellas empresas que voluntariamente divulgan información sobre responsabilidad social corporativa (RSC) incrementando la disponibilidad de información - no sólo para inversores sino también para el resto de stakeholders – consiguen una reducción de las asimetrías informativas. Además, se analiza esta relación en entornos caracterizados por un mayor nivel de compromiso y orientación hacia los stakeholders. Haciendo uso de una muestra internacional de 575 empresas para el periodo 2003-2009, nuestra evidencia empírica muestra como la divulgación voluntaria sobre aspectos de RSC reduce el problema de información asimétrica entre los diferentes agentes que participan en el mercado. Esta reducción es especialmente significativa en entornos caracterizados por una fuerte orientación hacia los stakeholders. Además, esta evidencia es complementada mediante el estudio de una posible relación bidireccional entre divulgación voluntaria e información asimétrica. Así, mayor divergencia en la información disponible en el mercado actúa como incentivo de las políticas de divulgación, las cuales a su vez, reducen tal problema de agencia en entornos caracterizados por un fuerte compromiso social.

Abstract

This paper is focused on demonstrating whether those companies that voluntarily disclose information regarding CSR to a greater extent by increasing the availability of information – not only for investors but also for stakeholders –achieve a decrease in information asymmetry problems. In addition, we analyse this relationship in environments characterized by a greater commitment and orientation to stakeholders. Making use of an international sample of 575 companies for the period 2003–2009, our empirical evidence shows how voluntary disclosure regarding CSR aspects reduces the problems of asymmetric information between the different market agents, which is especially important in environments characterized by a strong focus and commitment to stakeholders. In addition, this evidence is complemented by showing the bidirectional relationship between voluntary disclosure and asymmetric information in such environments. Thus, greater asymmetric information leads to higher voluntary information disclosure practices, which are able to reduce the agency problem in environments characterized by strong socially responsible commitment.

3

1. Introduction In recent decades, managers have increased their voluntary disclosures of corporate social responsibility (CSR) information to enhance transparency, boost investor confidence and improve the integrity of the capital market. It is necessary to take into account that the reputation and value of firms can be affected by their social and environmental practices. In this respect, for instance, Shell’s sales dropped by 70% in some countries when Greenpeace called for a boycott of Shell in June 1995 because of the company’s decision to dispose of an oil platform in the Atlantic and Nike struggled for years and invested a great amount of financial resources and effort in regaining its reputation after the 1997 child labour scandal (Dhaliwal et al. 2011).

Through access only to regulated information, investors are unable to obtain information in a timely manner and are inclined to acquire private information about the firm’s behaviour (Lakhal, 2008). This information asymmetry problem generates uncertainty in the stock exchange market and costs by introducing adverse selection into transactions as better informed investors use their private information in trading (Akerlog, 1970). Therefore, the adverse selection problem originates from one of the parties to the transaction holding relevant information unknown to the other party, so that the former takes its decision from a superior position.

Several drawbacks are likely to result from information asymmetry, such as much more difficult access to market capital (e.g. Frost et al., 2008); these are likely to decrease liquidity (Hong and Huang, 2005; Easley, 2010), increase dispersions and errors in analysts’ forecasts (Zhang, 2006) and increase the cost of capital (Diamond and Verrecchia, 1991). Thus, the extant literature demonstrates that a better disclosure policy (Healy et al., 1999; Leuz and Verrecchia, 2000), for example one that includes earning quality (e.g. Richardson, 2000; Ascioglu et al., 2012; Bhattacharya et al., 2012) and voluntary earnings announcements (e.g. Lakhal, 2008), reduces the negative effects of information asymmetry problems. In particular, previous studies show that asymmetric information is greater in companies that do not provide segment information (Greenstein and Sami, 1995; Hope and Thomas, 2008).

In this paper, we adopt a new approach to examining the relationship between information asymmetry and voluntary disclosures. Previous studies have shown that this kind of information generates different reactions within capital markets, such as a higher firm value and a lower cost of equity capital (Plumlee et al., 2008; Dhaliwal et al., 2011; Dhaliwal et al., 2012). Nonetheless, it is not possible to say that these effects are a consequence of reductions in transaction costs associated with asymmetric information problems. Elliott et al. (2013) showed that CSR disclosures are likely to cause an affective response in investors because they tend to be imagery-provoking and communicate corporate values that may be aligned or misaligned with the investors’ own values.

Our aim is focused on demonstrating whether those companies that voluntarily disclose information regarding CSR to a greater extent by increasing the availability of information – not only for investors but also for stakeholders –achieve a decrease in information asymmetry problems. In addition, we analyse this relationship in environments characterized by a greater commitment and orientation to stakeholders.

We consider one of the typologies of voluntary disclosure to examine the association between the level of disclosure and information asymmetry in relation to sustainability information. According to the 2013 research conducted by The Prince’s Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI),

4

commissioned by Radley Yeldar, both level of disclosure and sustainability information are the main informational characteristics that analysts and investors value in non-mandatory disclosures. Griffin et al. (2000) and Matsumura et al. (2011) state that CSR reporting can help investors make assessments related to energy consumption and emission control, as well as other key social issues that enable them to determine the potential social and environmental liabilities of the firm, as well as affecting information risk by altering the distribution of public and private information.

We consider that the usefulness of this report is greater in environments where the business culture of a country is more geared towards their stakeholders as it determines the relevance of CSR within corporate operations (Dhaliwal et al., 2011). In these countries, unlike shareholder-orientated environments, companies are characterized by conceiving that different stakeholders have legitimate interests in business activities and therefore different stakeholders hold a greater presence in the organisms and processes of corporate decision making.

Adapting the methodology of García-Sánchez et al. (2014), a panel data sample of firms was examined, incorporating into the quantification of the CSR report the adoption of GRI indicators and the requirement to disclose a minimum number of indicators in accordance with GRI application levels A, B and C. Companies the reports of which meet each level should incorporate the same indicators and number of these indicators, enabling comparability between companies and between years. This condition determines the relevance and usefulness of the CSR information. Moreover, the requirement to disclose the same indicators means that companies have no capacity to decide which indicators to report and they are obliged to disclose both good and bad performance.

Following Lang and Lundholm (1996) and Marquardt and Wiedman (1998), we use as a proxy of information asymmetry the accuracy of analysts’ forecasts, calculated as the absolute value of earnings per share minus the median of earnings per share forecast, scaled by the stock price. Managers could manage these forecasts and therefore their accuracy through communication with the analysts (Marquardt and Wiedman, 1998). Thus, “accuracy” or “forecast accuracy” measures the amount of information available to investors prior to disclosure.

Our analysis is different in that we observe the impact of the utility and relevance of CSR voluntary disclosure – the disclosure above and beyond the juridical reporting requirements – on market information asymmetry proxies.

From a sample of 575 companies from 17 countries observed from 2003 to 2009 and controlling for potential endogeneity problems between voluntary disclosures and information asymmetry, we find evidence supporting our hypothesis. Thus, in this study of aspects of CSR, by increasing the disclosure of corporate information, companies can fight against market frictions, encourage the availability of information between participants and reduce the problem of asymmetric information. This effect is particularly important in environments characterized by a strong national commitment to sustainability, where protection of stakeholders is greater.

In addition to our main purpose, we propose the existence of a possible bidirectional relationship between voluntary disclosure and information asymmetry in such environments. Therefore, based on the previous link, we propose that firms with greater asymmetric information problems tend to disclose more CSR information voluntarily to reduce the expectation gap between investors, reducing the advantage of

5

better informed investors (Diamond and Verrecchia, 1991; Healy et al., 1999; Leuz and Verrecchia, 2000).

Empirically, the results show that in countries more orientated towards stakeholders, information asymmetry between managers and investors involved in an agency relationship, or between informed and uninformed investors, creates demand for more transparency through voluntary CSR disclosure. These results are robust for different measures of CSR disclosures and information asymmetry proxies.

This paper improves on the previous literature methodologically by analysing simultaneous equations for panel data, based on the generalized method of moments (GMM) estimator proposed by Arellano and Bond (1991) to correct for problems of endogeneity, taking lags in CSR reporting and information asymmetry as instruments of these independent variables. GMM is more consistent than other simultaneous equation estimators (De Miguel et al., 2005) because it not only corrects endogeneity but also controls for the unobservable heterogeneity which arises because the CSR disclosure decision is taken by specific individuals within a firm, thus generating a particular behaviour pattern. These individual characteristics usually remain constant over time but are unobservable to the researcher (Chi, 2005).

Theoretically, the main contribution of this research relates to the kind of information disclosure analysed, concretely that concerning CSR aspects. The estimation of two simultaneous GMM equations reveals a bidirectional relationship between the disclosure business decision and investors’ information asymmetry problems. On the one hand, CSR reporting exerts a negative influence on information asymmetry in countries with higher stakeholder orientation. On the other hand, in those environments, information asymmetry exerts a positive influence on the comparability and relevance of CSR reports.

The paper is structured as follows: in the next section (2), the theoretical framework of the research employed to establish our research hypotheses is delineated. In the third section, the sample, variables, model and analytic technique are described. In the fourth section, we detail and discuss the results obtained. Finally, in section 5, the main conclusions, contributions and limitations of the paper are defined. 2. Information asymmetry and voluntary disclosure: research hypotheses Information asymmetry theory assumes that at least one party to a transaction has relevant information but the others do not. According to Kim and Verrecchia (1994), this allows us to talk of the existence of buyers and sellers in the market with different skills in information processing. Akerlof (1970) considers that the asymmetric distribution of information among market participants creates a barrier to the smooth exchange of assets at efficient prices with low transaction costs. Information asymmetry among investors creates trading frictions by introducing adverse selection, leading to lower levels of stock liquidity and higher expected returns (Leuz and Verrecchia, 2000), increasing a firm’s cost of capital (Brennan and Subrahmanyam, 1996). This is possible as the opportunity of engaging in transactions with counterparts that are more informed requires investors to seek higher returns, causing future expected payoffs to be discounted at a higher rate (Easley and O'Hara, 2004) as the information asymmetry component of the cost of capital is the difference in the cost of capital with and without the presence of adverse selection risk (Verrecchia, 2001).

If the existence of information asymmetry is assumed to result in the misallocation of resources, it is important to understand what factors could potentially

6

mitigate such asymmetry. Diamond and Verrecchia (1991) indicate that a lack of disclosure can create incentives for some investors to acquire information privately, thereby increasing information asymmetry. By increasing their disclosure, firms can combat these market frictions, instigating the optimal functioning of an efficient capital market (Healy and Palepu, 2001). Thus, Diamond (1985) argues that “Public information makes traders’ beliefs more homogeneous and reduces the magnitude of speculative positions which informed traders take” (p. 1073). This argument is based on the pioneering research of Akerlof (1970), who supports the notion that information disclosure reduces the opportunity to obtain private information from investors – and therefore the asymmetry of information – because the information has a dual role: it monitors the actions of the management and provides information about the value of the firm, which affects the market price in the context of efficient market hypotheses (Ronen and Yaari, 1993).

Previous research has analysed how voluntary information disclosure – financial or non-financial – reduces information asymmetry problems in capital markets. In relation to financial information, the financial report shows the economic and financial situation of the company to inform managers and shareholders and is of crucial importance in decision making when the interests of both shareholders and creditors must be taken into account (AAA, 1977). However, the financial report has a weakness in that it does not provide information regarding certain questions that are currently of great concern, namely the social and environmental aspects of company activities. To overcome this limitation, companies provide information in their annual reports or in complementary reports concerning issues such as corporate governance, intellectual capital and CSR.

Among the main benefits associated with voluntary disclosure, we would highlight its influence on the cost of capital and the market price (Elliot and Jacobson, 1994; Larrán and García-Meca, 2004). Thus, the increased availability of voluntary information affords better understanding of the economic risk of investors and creditors and thus reduces the cost of capital and cost of debt for the company and greater analytic coverage (Glosten and Milgrom, 1985; Lev, 1992; Holland, 1997; Mazumdar and Sengupta, 2005). In addition, disclosure is associated with a strengthening of the liquidity of securities (Healy et al., 1999) and increased reputation and corporate image (Du et al., 2010).

Empirically, several studies have shown that asymmetric information and agency costs are lower for those companies that provide segmented information (Greenstein and Sami, 1995; Berger and Hann, 2007; Hope and Thomas, 2008). Richardson (2000) and Ascioglu et al. (2012) analyse the effect of earnings quality (as the inverse of earnings management practices) on information availability. These authors obtain evidence of how the level of information asymmetry is notably higher in those companies with poor earnings quality (as a consequence of the higher risk of adverse selection and the increase in transaction costs). In line with Easley and O´Hara’s (2004) study, actions associated with the acquisition of more private information versus public information will incur higher capital costs (Botosan, 1997; Botosan and Plumlee, 2002).

In summary, the literature suggests that firms provide information to reduce information asymmetries (Grossman and Hart, 1980; Milgrom, 1981; Verrecchia, 1983). This provision of information can be achieved through several channels, including the reported accounting numbers and additional disclosure. Therefore, any disclosure

7

above the statutory requirements enables diversely endowed investors to make better, although idiosyncratic, estimates of future transaction costs at the time of acquisition. Increased voluntary disclosure can mitigate transaction costs arising from adverse selection and inhibit price protection on the part of well-endowed investors, facilitating share purchase and thus decreasing the cost of capital (Healy and Palepu, 2001).

Social and environmental information may be useful for financial stakeholders (Blacconiere and Patten, 1994; Blacconiere and Northcut, 1997; Graham et al., 2000; Richardson and Welker, 2001; Reverte, 2009) and the CSR report is the main channel for communicating the social and environmental impact of the company. Specifically, it communicates information to its stakeholders regarding not only the magnitude and trends of profits but also how they were obtained (Gray et al., 1995; Brady and Honey, 2007; Dragomir and Cristina, 2009). In this way, the CSR report is expected to contain information concerning a wide range of topics and practices related to the company’s relationships with its suppliers, customers and workforce, social contributions, public safety, safety and health in the workplace, and so on (Williams et al., 1999; Lefort and González, 2008). The increasing importance placed on the issue of sustainability all over the world has contributed to focusing attention on CSR (Yip et al., 2011).

Empirically, Dhaliwal et al. (2011) found that firms which publish CSR reports subsequently experience a lower cost of equity capital if they also demonstrate better CSR performance. A year later, Dhaliwal et al. (2012) provided evidence that investors from around the world, as represented by financial analysts, appear to use CSR disclosure in forecasting the future financial performance of firms. In addition, Plumlee et al. (2008) observed the impact of the quality of voluntary environmental disclosure on firm value, while Griffin et al. (2010) found a significant relationship between voluntary carbon disclosures and stock prices.

In this sense, whenever the information provided by the companies has acceptable levels of reliability and relevance, the market places a positive value on the voluntary disclosure of sustainability as it results in a reduction of information asymmetries between participants and transaction costs for investors (Patten, 2002; Frías-Aceituno et al., 2012). The dissemination of CSR information gives greater confidence and reassurance to corporate investors in relation to various aspects of their operations, increasing visibility and reducing the level of private information (Diadmon, 1985; Bushee and Miller, 2012) because it alters the distribution of public and private information from investors. Moreover, such disclosure leads towards a reduction in asymmetric information between managers and investors and ultimately to a reduction in the information costs incurred by investors.

In view of above arguments, the following hypothesis is proposed, based on the negative effect of voluntary disclosure of CSR practices on asymmetric information: Hypothesis 1: Voluntary disclosure of information concerning CSR increases information availability, reducing the asymmetric information problem. Based on institutional theory as a theoretical paradigm of isomorphism among companies, firms are economic units that operate within contexts formed by a nexus of institutions, which affect their behaviour and impose expectations on them (Campbell et al., 1991; Roe, 1991, Campbell, 2007). Thus, organizations operating in countries with a similar institutional structure will adopt homogeneous forms of behaviour (La Porta et al, 1998; Claessens and Fang, 2002; Campbell, 2007). DiMaggio and Powell (1983)

8

named this process “isomorphism” and argued that it enhances companies’ stability and survival, facilitating political power and institutional legitimacy.

These factors are a consequence of a series of institutional aspects, such as political regulation, regulatory pressure on legitimate organizations, or pressures from the community (Roe, 1994; Roy, 1997). Thus, the macro institutional context can determine the degree of orientation and awareness to issues of CSR and its subsequent disclosure. Thus, the impact of voluntary disclosure of CSR activities in the asymmetric information problem can be moderated by the institutional environment.

Resource dependence theory posits that a firm depends on the resources in its environment for its survival and thus will be more concerned about those groups that can significantly influence the supply of the resources critical to its operations (Pfeffer and Salancik, 1978). In countries that are more stakeholder-orientated, a firm is viewed as an autonomous economic entity constituting a coalition of various participants, such as shareholders, corporate management, employees, suppliers of goods and services, suppliers of debt and customers, all desiring the continuity of the firm as a whole (Ball et al., 2000; Simnett et al., 2009). These markets could be more sensitive to the interests of stakeholders and demand that firms act according to the legal status in the society in which they operate; in turn, they are expected to fulfil certain social responsibilities (Kolk and Perego, 2008). In addition, countries with a legal system orientated to protecting stakeholders are able to influence managerial decision-making (Prado-Lorenzo et al., 2012).

More concretely, in these countries, stakeholder groups such as employees, consumers, the government and communities are likely to have a greater influence on firms’ operational decisions, determining different CSR practices (Kolk and Perego, 2008), and thus their disclosure via sustainability reports. Furthermore, they are characterized by having laws aimed at protecting the rights of workers and other stakeholders (Marginson and Sisson, 1994; Ferrer and Quintanilla, 1998). This suggests that CSR practices are an assessment of firms’ environmental, social and governance performance related to stakeholders’ interests.

Levy and Kolk (2002) and Matten and Moon (2008) confirmed that cultural differences affect the regulation and direction of CSR, demonstrating that companies in different contexts develop different responses to changes in corporate behaviour. The pressure exerted by the general public, politicians and regulatory agencies creates differences in the extent to which companies approach their triple bottom line (Kolk and Perego, 2008). Schuler and Cording (2006) suggested that countries with different levels of stakeholder orientation are likely to feature consumers with different moral values regarding social causes, which will in turn affect firm sales and financial performance to different degrees. Furthermore, the higher the national pressure to engage in CSR activities, the higher the transparency concerning these issues (Prado-Lorenzo and García-Sánchez, 2010).

According to the previous arguments, we conjecture that managers in countries that are more stakeholder-orientated show a greater concern for socially responsible issues. This stems not only from a greater willingness to promote CSR practices, but also to disclose them. As a result of this voluntary disclosure of CSR information, asymmetric information is reduced to a greater extent in more stakeholder-orientated environments. Thus, the following hypothesis is proposed:

9

Hypothesis 2: The negative impact of voluntary disclosure of information concerning CSR on information asymmetry is greater in more stakeholder-orientated environments. 3. Empirical study Population and sample The sample used to test the proposed hypotheses comprised 575 non-financial companies listed for the period 2003–2009. The sample is unbalanced, consisting of 3,086 observations obtained from 17 countries, including the US, the UK, Germany, the Netherlands, Austria, Denmark, Norway, Finland, Sweden, Switzerland, France, Italy, Spain, Belgium, Ireland, Portugal and Greece. We used the following three publicly available databases to collect the required data: (1) Thomson One Analytic for accounting and financial data; (2) the Ethical Investment Research Service (EIRIS) for data on CSR; (3) I/B/E/S for analysts’ earnings and long-term growth forecasts. The financial information was collected from consolidated statements of the sample of companies.

Table 1 shows the sample distribution by year and country. As can be seen, higher percentages refer to the years from 2008, making up 16.75% of the observations. Nonetheless, in 2007, 2008 and 2009, the percentage remains fairly constant, at around 16%. In relation to geographic diversity, 38.2% of the observations relate to companies located in the UK, followed by 33.67% owned by US companies. Both countries account for a little over 70% of the companies analysed in this paper.

[Insert Table 1 about here] Variables Regarding the measures of the different variables employed in this study, the two main aspects are: (i) information asymmetry and ii) voluntary disclosure on CSR issues. In relation to the former, following authors such as Lang and Lundholm (1996), Marquardt and Wiedman (1998) and Lang and Lundholm (2000), we define as a proxy of information asymmetry the analysts’ forecast accuracy as the absolute value of earnings per share minus the median of forecasted earnings per share, scaled by total share price. Thus:

where EPS represents the earnings per share. A lower absolute error suggests greater availability of information and therefore less asymmetric information (Maquardt and Wiedman, 1998).

With respect to the disclosure of information concerning CSR, managers can be strategic when choosing their disclosures, using voluntary CSR disclosure as a tool to influence the market’s expectation of firm value. In particular, Barclay and Smith (1988) show that managers can alter the normal flow of information to the market through spurring or delaying the release of news. Brockman, Khurana and Martin (2008) demonstrate that managers increase disclosure of bad news when they have an incentive to dampen the stock price prior to open market repurchases and increase disclosure of good news after their open market repurchases. Al-Tuwaijri et al. (2004) and Clarkson et al. (2008) argue that companies seek a competitive edge by disseminating environmental information. Patten (1992), Hughes et al. (2001) and

10

Bewly and Li (2000) find increasing business legitimacy to be the primary goal when disseminating this information. Furthermore, this type of information is particularly geared toward reducing future political costs (Prado et al., 2008b) and to obtaining financial market benefits (Prado et al., 2009a).

These studies show that voluntary disclosures can be opportunistic and thus not credible. Our analysis of the disclosure of CSR information is based primarily on the review of CSR reports (Donnelly and Mulcahy, 2008), initially using the triangulation of discourse analysis and later using indices that measure the standardization of disclosure of CSR information in relation to international indicators, such as the GRI guidelines, a more objective approach (Clarkson et al., 2008). In line with Prado-Lorenzo et al. (2009a, 2009b), Nikolaeva and Bicho (2011), Legendre and Coderre (2012) and Frías-Aceituno et al. (2013a), in this paper we consider the level of the adaptation of CSR disclosure information with respect to GRI guidelines. Through the comparison of the information contained in CSR reports with the recommendations of GRI standards, we can determine the extent to which this information is comprehensive, comparable and harmonized.1

However, we consider that focusing only on the quantification of the number of GRI indicators included in the CSR reports is an important limitation in view of the fact that companies only incorporate the indicators that show their best CSR performance. Thus, our proposal improves on previous approaches by incorporating into the quantification of the GRI indicators the requirement to disclose a minimum number of indicators according to the GRI application levels A, B and C. Companies should incorporate the same indicators and number of these indicators at any of these levels, assuring comparability between companies and between years. This condition determines the relevance and usefulness of the CSR information. Moreover, the requirement to disclose the same indicators means that companies have no capacity to decide which indicators to report and they are obliged to disclose both their good and bad performance.

Thus, the dependent variable representative of the degree of voluntary disclosure of information is defined as GRI, an ordinal variable that takes values between 0 and 100 (0, 25, 50, 75 and 100), as is shown in Table 2. These values are assigned based on the level of standardization of CSR disclosure. To create this variable, we examined the reports of all companies included in the sample and assigned to the GRI values varying according to the classifications A, B or C of the GRI guidelines (Table 2). The information available in the EIRIS data base was supplemented with reports on CSR or sustainability reports from the websites of each company.

[Insert Table 2 about here] Regarding the effect of institutional factors, following Prado-Lorenzo and García-Sánchez (2010) and Martínez-Ferrero and García-Sánchez (2014), we included a dummy variable based on the National Corporate Responsibility Index (NCRI), identifying the aggregate institutional context for CSR. For this purpose, DNCRI takes the value 1 if the company’s country of origin has an above average NCRI and 0 otherwise. NCRI is calculated by analysing seven components at the country level: (i) corporate governance structures; (ii) ethical commitment, especially tackling corruption; 1 According to GRI guidelines, information about CSR should be: (i) global, i.e. reporting on all aspects of the company (financial, economic, sustainability, etc.); (ii) comparable, so it must be numeric and monetary; and (iii) harmonized so that all parties can understand the information, regardless of where the company is located.

11

(iii) changes in the formulation of policies for sustainable development; (iv) commitment to human capital formation; (v) engagement with civil society; (vi) the contribution to social welfare through public funds; (vii) environmental management.

To avoid biased results, we included several control variables the effect of which on voluntary disclosure and information asymmetry is well established by previous studies. Specifically, we incorporate in our model: financial reporting quality, business diversification, proprietary costs, corporate size and leverage, growth opportunities and corporate profitability. Moreover, we control by country and time period.

Regarding the inclusion of financial reporting quality, Leuz and Verrechia (2000) adopted a cross-sectional approach to examine the link between quality of information and information asymmetry in the German capital market. They focused on a sample of German companies that have adapted their accounting standards to the IFRS and empirically determined that the greater information available to investors and the higher the quality of information, the smaller the agency conflicts. Helfin et al. (2005) also show that higher quality disclosure is associated with lower transaction costs and reduces asymmetric information. Finally, Brown and Hillegeist (2007) evaluated asymmetric information using the probability of an informed trade developed by Easely et al. (2002) as a proxy. They conclude that the highest quality disclosure reduces the likelihood that investors will seek or find private information and trade on the basis of this information.

As a proxy of financial reporting quality, we created the FRQ variable based on the accruals quality model proposed by Ball and Shivakumar (2006). These authors suggest that nonlinear accrual models which incorporate the timely recognition of losses perform better than linear models. Hence, they consider a current-year cash flow dummy and its interaction with the level of previous, current and future cash flows.

where the change in working capital accruals from year t-1 to t is: ∆WC = ∆Accounts Receivable + ∆Inventory - ∆Accounts Payable - ∆Taxes Payable + ∆Other Assets; OCF is the operating cash flow; ∆Revenues is the change in revenues; PPE represents plan, property and equipment; DOCF is an indicator variable for the negative cash flows which takes the value 1 if there is a negative OCF and 0 otherwise; i indicates the company and t refers to the time period. All the variables are scaled by total assets.

We use the absolute value of the residuals from this model as a proxy for FRQ: the lower the degree of this proxy, the higher the degree of FRQ.

With respect to business diversification (Industry ), the sample is divided into industry groups, which are classified by the Compustat economic activity code. This comprises companies in the following fields: Materials (building materials, chemicals, gases and raw materials), Consumer Discretionary (car manufacturers, builders, hotels, casinos, shops and appliance companies), Consumer Staples (food and drug retail and brewers), Healthcare (healthcare and pharmaceuticals), Energy (oil and gas companies), Industrial (conglomerates, construction, aerospace and defence, heavy equipment, airlines and shipping companies, truck, rail and business services and supplies), Information Technology (telecommunications, information technology, software, electronics, and semiconductors), and finally, Utilities (electricity, gas, water, and shipping companies). Financial companies are not included in the sample due to their special characteristics.

Based on the sector code, we adopt the procedure of Gamper-Rabindran (2006) and Pérez-Batres et al. (2012a) to create an industry index that takes the values 1, 2

12

and 3 in relation to their orientation towards sustainability. These authors choose to classify sectors according to their pollution intensity from low (taking the value 1) to high (taking the value 3). Among the least polluting sectors are textiles and footwear (except rubber and plastic), the printing industry and advertising. In contrast, among the most polluting industries are oil refineries and miscellaneous products of petroleum and coal, iron and steel, paper and glass and glass products, and wood products (except furniture).

Nonetheless, it is necessary to take into account that there may be costs associated with information disclosure regarding CSR actions in terms of compromising the competitive position of companies by providing strategic information to potential competitors (Hayes and Lundholm, 1996; Harris, 1998). Therefore, voluntarily providing sustainable information would be limited by the existence of ownership costs (Verrecchia, 1983; Dye, 1986; Wagenhofer, 1990), which could compromise future cash flows. In this sense, Harris (1998) and Botosan and Stanford (2005) found that those companies with higher proprietary costs show a lower tendency to disclose segment information on a voluntary basis.

Proprietary costs are proxied by the industry concentration index (PropietaryCosts ). Following Verrecchia (1983) and Blanco-Peláez (2010), higher concentration implies higher proprietary costs as current competitors may adversely use the information disclosed. Thus, firms in less competitive industries want to protect the abnormal profits that tend to occur in these markets, although it has also been found that disclosure is lower in competitive sectors because such information may harm the competitive position of the company. We calculate industry concentration using the Herfindahl index. Higher values indicate a higher industry concentration. This index is obtained as follows:

Herf= where Sij = sales of company i in industry j, as defined in the Industry variable; Sj = total sales of all firms in the industry j; Sij/Sj = participation of firm i in industry j; N = the number of companies in industry j.

The other control variables have been studied extensively in the existing literature. The proxy for firm size (Size) is approximated by the natural logarithm of total assets. Growth opportunities (Growth ) are often measured by the market-to-book ratio, i.e. the ratio between the market value of the company and the book value (Larrán and Garcia-Meca, 2004). To reflect the effect of the level of debt, we include the debt variable (Leverage ), which is approximated by the ratio of total debt to total equity (Clarkson et al., 2007; Ghosh and Moon, 2010). To measure corporate profitability, following previous studies such as those of Reverte (2009) and Clarkson et al. (2007), we use an accounting measure of performance, return on assets (ROA), defined as the ratio of earnings before interest and tax to total assets. Model and analytic technique The main aim of this study is to analyse the possible relationship between voluntary disclosure of information on CSR issues and the degree of information asymmetry. We focus on more stakeholder-orientated environments to test this relationship.

To test our first hypothesis, determining the effect of voluntary disclosure regarding CSR issues on information asymmetry, we propose an equation in which the

13

dependent variable represents the degree of information asymmetry, InformationAsymmetry , which is explained by voluntary disclosure on CSR issues, GRI, and the rest of the control variables: InformationAsymmetry = f (GRI, Control variables) This relation is tested empirically through the following dependence model:

InformationAsymmetry it = λ0 + λ1GRIit + λ2FRQit + λ3Industryit + λ4PropietaryCostsit + λ5Sizeit + λ6Growthit + λ7Leverageit + λ8ROAit µit + ηi (Model Ia)

Second, to determine the moderating effect of institutional factors (hypothesis 2), we propose an equation in which the dependent variable is represented by asymmetric information (InformacionAsimetrica ) and is explained by voluntary disclosure, GRI, the level of stakeholder orientation, DNCRI, and the other control variables. InformationAsymmetry = f (GRI, DNCRI, Control variables) This relationship is tested empirically using the following dependence model:

InformationAsymmetry it = β0 + β1GRIit + β2DNCRIit + β 3GRI*DNCRIit + β4FRQit + β5Industryit + β6PropietaryCostsit + β7Sizeit + β8Growthit + β9Leverageit + β10ROAit + µit + ηi (Model Ib)

where i represents the company and t represents the time period, λ and β represent estimating parameters, εi represents the unobservable heterogeneity and µi represents the error term;

To test the proposed hypotheses, we estimated equations for the panel data by applying the estimator proposed by Arellano and Bond (1991). Using panel data enables an assessment of companies' performance in the sample over time by analysing observations from several consecutive years for the same companies. Moreover, considering the temporal dimension of data, particularly in periods of great change, enriches the study. With regard to this, the panel data enable us to control the effects that may affect sustainable practices each year.

More specifically, we have estimated our models using the generalized method of moments (GMM) as, unlike within-groups or generalized least squares estimators, it accounts for endogeneity. Although the endogeneity issue can also be controlled by using a simultaneous equations estimator (such as maximum likelihood or two- or three-stage least squares estimators), the choice is based on concerns regarding consistency (De Miguel et al., 2005). Although the aforementioned estimators are more efficient than GMM, they are not consistent and generate biased results because they do not eliminate unobservable heterogeneity, i.e. a firm’s own specificity that gives rise to a particular behaviour. These differences between individual firms, which are potentially correlated with the explanatory variables (also called individual specific effects), are invariant over time and directly influence corporate decisions (entrepreneurial capacity, corporate culture, etc.). To control for unobservable heterogeneity, the GMM decomposes the random error term (εi) into two parts: the combined effect (µit), which varies between individuals and periods of time, and the individual effect (ηi), which is characteristic of the company. 4. Results Descriptive statistics Table 3 shows the descriptive statistics of the main variables used in this study. Specifically, voluntary disclosure through the GRI variable takes values from 0 to 100 (0, 25, 50, 75 and 100) and has a mean value of 28.006 and standard deviation of ±

14

30.349. In general, companies do not show a great commitment to the voluntary disclosure of CSR issues adapted to the recommendations of the GRI guidelines. InformationAsymmetr y as the dependent variable shows a mean value of 2.313e-06 and a standard deviation of ± 0.0001. The companies analysed operate together with other market participants and users of information, on average, with a low level of asymmetric information and therefore with a greater availability of information that facilitates decision making.

[Insert Table 3 about here] Regarding the control variables, the quality of information (FRQ) shows a mean value of 1.1235 and a standard deviation of ±16.2612, which allows us to highlight a strong disparity between the quality of information disclosed by the companies analysed. Proprietary costs, proxied by the Herfindahl index for industry concentration, show an average value of 0.01004 and a standard deviation of ± 0.0177. The range of values in this index of industry concentration ranges from 0 (perfect competition) to 1 (monopoly). Therefore, the results show that the companies analysed operate in very close to perfectly competitive markets – the situation in which companies lack the power to manipulate the price (price takers) and welfare is maximized. With respect to the other variables, the average size of the firms in the sample is 7.9386 (in millions of Euros), growth opportunities have a mean value of -0.9812, debt ratio has a value of 1.3907 and average profitability measured by the return on assets (ROA) ratio has a value of 1.6089. Regarding the institutional variable, DNCRI, more than half of the companies are located in environments with a strong commitment to the stakeholder (53.69%). Therefore, the national commitment of the country of origin of the company shows an above average commitment to sustainability and CSR issues.

To describe disclosure in more detail, Table 4 shows the descriptive statistics of the GRI variable at the country level. Of the countries analysed, those that stand out primarily in relation to shift towards the recommendations of the GRI guidelines are Portugal (with an average value of 48.438) and Norway (with a mean value of 46.739). Both countries are strongly committed to the dissemination of information and have adapted their procedures to the GRI guidelines, even at level C. In contrast, Greece (with an average value of 6.579) shows little inclination to engage in voluntary disclosure of CSR, neither issuing reports on CSR nor sustainability reports.

[Insert Table 4 about here] In the same way, Table 5 summarizes the descriptive statistics of GRI for each of the sectors. In this case, industries with moderate intensity (e.g. the manufacture of metal products and electrical machinery) show a greater commitment to CSR disclosure. However, in general, they do not show a level of adaptation to the recommendations of the GRI guidelines (do not reach the value 50 assigned to reporting CSR at the core GRI level C).

[Insert Table 5 about here] Table 6 shows the Pearson correlation coefficients between the different variables, which allow us to analyse the bivariate correlations between them. The coefficients between the dependent and independent variables are not very high and neither are those between the different independent variables.

[Insert Table 6 about here] Results of dependency models

15

Table 7 shows the results of model Ia and model Ib, based on which we can test the hypotheses of the study concerning the impact of disclosure on asymmetric information in strongly stakeholder-orientated environments.

[Insert Table 7 about here] First, the results of model Ia show the existence of a negative association between voluntary disclosure (as the explanatory variable) and information asymmetry (coef. -3.283e-07, p=0.000). From this, is can be determined that those companies which voluntarily disclose information concerning CSR offer the market a greater volume of information, thus reducing information asymmetries. This result confirms previous evidence obtained by several authors, such as Daimond (1985), Glosten and Milgrom (1985), Richardson (2000), Healy and Palepu (2001) and Ascioglu et al. (2012), among others, for other types of voluntary information. Their findings show how disclosure can reduce friction in the marketplace by promoting the increased availability of information to the various participants. According to Grossman and Hart (1980) and Verrecchia (1983), firms reveal information to reduce the agency problem.

Based on institutional theory, companies that operate in countries with similar institutional structures will adopt homogeneous patterns of behaviour (La Porta et al., 1998; Claessens and Fang, 2002; Campbell, 2007). In this line, modelo Ib shows the results obtained for the level of stakeholder protection as a moderating factor of the link between disclosure and asymmetric information. Again, our results show a significant negative relationship between voluntary disclosure of CSR and asymmetric information (coef. -1.19e-07, p=0.0012). Thus, the market positively values voluntary disclosure of sustainability information as it results in a reduction in information asymmetries among participants. Moreover, this negative relationship is especially significant in environments characterized by greater stakeholder protection of commitment to sustainability (coef.-2.94e-07, p=0.000). We can say that voluntary disclosure in countries strongly engaged with stakeholders leads to a greater reduction in market friction as a result of asymmetric information (GRI coef. -1.19e-07 + coef GRI* DNCRI -2.94e-07 = - 4.13e-07) than in countries less orientated to stakeholders. Thus, it can be seen how the macro institutional context could determine the degree of orientation and awareness to issues of CSR and subsequent disclosure.

Our results support the evidence previously provided by Levy and Kolk (2002), Matten and Moon (2008), Kolk and Perego (2008) and Prado-Lorenzo and García-Sánchez (2010), namely that environments more committed to stakeholders can exert a strong influence on business decisions, among which we highlight CSR disclosure. In addition, we observe that the higher the pressure on national CSR, the greater transparency on these issues and the greater the disclosure, but we also show that this translates into lower problems of asymmetric information.

The effect of the control variables is analysed together in models Ia and Ib. We find that providing high quality information reduces asymmetry. The type of industry also acts as a determinant of such asymmetries. In highly polluting industries, asymmetric information is higher, primarily due to the less “ethical” aspects not revealed by the company. For its part, higher industry concentration has an impact on asymmetric information; the higher the concentration (closer to monopoly), the greater the asymmetry. In terms of the other control variables, greater corporate size and profitability are associated with less information asymmetry. Information asymmetry results in high levels of debt, primarily because financial institutions and other lenders have inside information.

16

Robust analyses To achieve robust results, we employ alternative measures for the main variables: information asymmetry and voluntary disclosure. The results for the different robust analyses are summarized in Tables 8 and 9, functioning as robust measures of voluntary disclosure.

Table 8 again shows the relationship between voluntary disclosure and information asymmetry employing Tobin’s q as a robust measure of the voluntary disclosure (Clarkson et al., 2008) and a dummy variable (Disclosure) that takes the value 1 if a company reports information on CSR – and independently if such reports are adapted to the recommendations of the GRI – and 0 otherwise (as a robust measure of GRI).

[Insert Table 8 about here] Regarding the institutional factor, stakeholder protection, we opt for a subdivision of the sample in environments characterized by such protection (the DNCRI variable is set to 1) and in environments less committed to the stakeholder (the DNCRI variable is set to 0).

Table 9 differs by considering another robust measure of disclosure. In this case, the alternative variable (Disclosure) is approximated by GRI_2. This variable takes values of between 0 and 2 (0, 1 and 2). The variable takes the value 0 if the company does not disclose information about CSR, the value 1 if information is disclosed but not according to GRI standards and the value 2 if information is disclosed based on the recommendations of the GRI.

[Insert Table 9 about here] From both tables, we obtain robust evidence of prior results for the different measures of asymmetric information, disclosure and institutional factor. That is, the report of CSR information is able to reduce information asymmetries, and as such reduction is particularly important in environments characterized by strong stakeholder protection.

Specifically, using coefficient analysis, in Table 9 we see that the impact of the disclosure of CSR on information asymmetry (measured by Disclosure ) is higher in environments with more protection afforded to different stakeholders (coef. -5.107) than in those showing less orientation towards social and environmental issues (coef. -1.861). In Table 10, it can again be seen that the reduction of asymmetric information is higher in such environments (GRI_2 coef. -2.943) than in those in which the orientation and commitment is lower (GRI_2 coef. -1.095).

[Insert Table 10 about here] Complementary analysis: bidirectional relationship between CSR disclosure and information asymmetry Taking into account previous evidence, Healy and Palepu (2001) suggest that voluntary disclosure of information arises from the existence of asymmetric information and agency conflicts. Thus, when asymmetric information increases, managers have more incentives to disclose private information leading to a reduction in the cost of capital, because it will contribute and help investors and creditors to gain a better understanding of the economic risk of the investment made or intended (Elliot and Jacobson, 1994) and prevent the market interpreting the information as undisclosed bad news (Dye, 1985; Jung and Kwon, 1988). Voluntary disclosure leads to a positive

17

impact, reducing the market price range and allowing investors to protect themselves from those better informed agents resulting from asymmetric information.

Thus, in addition, we consider an additional objective which focuses on whether asymmetric information acts as one of the determinants of disclosure, namely, voluntary CSR disclosure. In line with the rest of the study, the objective is used to show the role played by institutional factors, such as the degree of stakeholder protection. In this second objective, the proposed dependent variable representative of CSR disclosure is GRI, which is explained by the level of information asymmetry (InformationAsymmetry) , stakeholder protection as an institutional factor (DNCRI) and the other control variables. GRI = f (InformationAsymmetry, DNCRI, Control variables) This relationship is empirically tested through the following dependence model:

GRIit = 0 + 1InformationAsymmetryit + 2DNCRIit + + 3InformationAsymmetry*DNCRIit + β4FRQit + β5Industryit + β6PropietaryCostsit + β7Sizeit + β8Growthit + β9Leverageit + β10ROAit + µit + ηi (Model II)

where represents the estimating parameters; the other variables are as previously detailed.

Again, to test the proposed hypothesis, we estimated equations for the panel data by applying the estimator proposed by Arellano and Bond (1991). Table 10 presents the results of dependency model II , which focuses on whether the asymmetric information existing between the different participants in the market acts as a determinant of increased disclosure in environments strongly orientated towards stakeholders.

The empirical evidence obtained shows the negative and significant effect of information asymmetry on voluntary disclosure (coef. -6154.011, p=0.005). Nonetheless, our results support the moderating effect of institutional context. It can be affirmed that those companies located in countries strongly committed to CSR and where stakeholders face different levels of availability of information, unlike companies operating in less stakeholder-orientated countries, the voluntary disclosure mechanism reduces friction between participants (InformationAsymmetry coef. -6154.011 + InformationAsymmetry*DNCRI coef. 12750.34= 6596.329). Thus, it is again apparent how the macro institutional context could determine the degree of orientation to and awareness of CSR issues and subsequent disclosure.

Based on this result, the evidence shows that companies operating in markets or in situations characterized by a high level of asymmetric information demonstrate increased concern in relation to voluntary disclosure. In environments characterized by a strong focus on social and environmental issues, asymmetric information acts as one of the determinants of disclosure. Companies try to reduce asymmetries by disclosing information so that all stakeholders have the same information and conditions for activity in the market.

In summary, of all the proposed models, this study confirms the existence of a bidirectional relationship between voluntary disclosure and asymmetric information in strongly stakeholder-orientated environments. Greater disclosure is able to reduce information asymmetries, which is one of the factors considered by managers when disclosing CSR aspects.

18

5. Conclusions The aims of this research are summarized as follows: first, to analyse the extent to which voluntary disclosure of CSR information reduces asymmetric information derived from agency conflict; second, to show that relationship in strongly stakeholder-orientated environments. Complementary to these purposes, the existence of a bidirectional relationship between voluntary disclosure and asymmetric information is proposed to determine the causes and consequences of the disclosure of information.

With these purposes in mind, we make use of an international sample of 575 listed and non-financial companies from 17 countries for the period 2003–2009. The results provide evidence that the degree of stakeholder protection – such as the external control mechanism – promotes greater availability of information as a result of voluntary disclosure concerning CSR. Thus, reducing asymmetric information through voluntary disclosure is particularly relevant in stakeholder-orientated environments. In addition, we obtain evidence of the bidirectional relationship between voluntary disclosure and asymmetric information: CSR disclosure is not only able to reduce the problems of asymmetric information, but also acts as the trigger for disclosure.

This study contributes to the existing literature in several respects. In particular, it offers in-depth analysis of the causes and consequences of voluntary disclosure in general and of CSR in particular, in a specific environment, one characterized by a strong focus and commitment to the stakeholder. First, it focuses on the possible bidirectional relationship between voluntary disclosure and asymmetric information where previous studies have focused on unidirectional relationships. Second, previous studies have considered quality of information, segment information, earnings quality, etc. in relation to information disclosure, whereas this study shows evidence for the specific case of voluntary disclosure of CSR. Therefore, we not only focus on the economic and financial aspects of the information disclosed, but also the reaction of shareholders and stakeholders towards social and environmental issues. Furthermore, using an international sample for the period 2003–2009 provides more generalizable and applicable results in relation to other countries. In addition, we incorporate an appropriate technique to analyse our models, the GMM estimator of Arellano and Bond (1991), which allows unobserved heterogeneity to be controlled and endogeneity problems to be corrected.

Finally, it is necessary to note some limitations of this research. The first limitation is based on the availability of data (2003–2009). Future studies should increase the period analysed. It is also necessary to determine the relationship analysed in the context of a single country as each is characterized by different corporate governance systems and various institutional contexts. Furthermore, this study does not take into account other variables that can affect the bidirectional relationship between disclosure and information asymmetry, such as ownership concentration, market development or discretionary decisions by managers.

19

Table 1. Sample distribution

Distribution of observations by year

TOTAL 2003 2004 2005 2006 2007 2008 2009

3086 363 382 396 430 497 517 501

100% 11.76% 12.38% 12.83% 13.93% 16.10% 16.75% 16.23%

Distribution of observations by country

TOTAL Austria Belgium Denmark Finland France Germany Greece Ireland Italy

3086 23 43 48 33 183 148 19 29 48

100% 0.75% 1.39% 1.56% 1.07% 5.93% 4.80% 0.62% 0.94% 1.56%

Netherlands Norway Portugal Spain Sweden Switzerland UK USA

3086 60 23 16 58 64 73 1.179 1.039

100% 1.94% 0.75% 0.52% 1.88% 2.07% 2.37% 38.20% 33.67%

20

Table 2. Categories of the GRI variable

GRI

values Type of CSR report

GRI = 0 Companies that do not disclose CSR information

GRI= 25 Companies that disclose CSR information which does not comply with GRI guidelines.

GRI = 50

Companies that disclose CSR information following the C level of the GRI guidelines, i.e. their reports are very basic. More specifically, the report incorporates information on: Profile Disclosures: statement numbers 1.1; 2.1–2.10; 3.1–3.8; 3.10–3.12; 4.1–4.4; 4.14–4.15 (see GRI guidelines version 3). Disclosures on management approach: not required. Performance indicators and sector supplement performance indicators: a minimum of any 10 performance indicators, including at least one from each of the social, economic and environment categories. Performance indicators may be selected from any finalized Sector Supplement, but 7 of the 10 must be from the original GRI guidelines.

GRI = 75

Companies that disclose CSR information following the B level of the GRI guidelines, i.e. their reports are complete. Specifically, the report contains information on: Profile Disclosures: statement numbers 1.1; 1.2; 2.1–2.10; 3.1–3.13; 4.1–4.17 (see GRI guidelines version 3). Disclosures on management approach: for each indicator category. Performance indicators and sector supplement performance indicators: a minimum of any 20 performance indicators, including at least one from each of the economic, environment, human rights, labour, society and product responsibility categories. Performance indicators may be selected from any finalized Sector Supplement, but 14 of the 20 must be from the original GRI guidelines.

GRI = 100

Companies that disclose CSR information following the A level of the GRI guidelines, i.e. their reports are very advanced. More specifically, the report incorporates information on: Profile Disclosures: 1.1; 1.2; 2.1–2.10; 3.1–3.13; 4.1–4.17 (see GRI guidelines version 3). Disclosures on management approach: for each indicator category. Performance indicators and sector supplement performance indicators: incorporates each core and sector supplement indicator.

Source: the authors

21

Table 3 . Descriptive statistics

Mean Std. Dev.

GRI 28.006 30.349

InformationAsymmetry 2.31e-06 0.0001

FRQ 1.1235 16.2612

PropietaryCosts 0.01004 0.0177

Size 7.9386 2.4116

Growth -0.9812 2.1928

Leverage 1.3907 1.5188

ROA 1.6089 8.6422

Frequencies

Absolute Relative

DNCRI 1657 53.69%

Table 4. Descriptive statistics of GRI by country

Country Mean Std. Dev.

Austria 23.913 30.598

Belgium 25.581 31.095

Denmark 21.354 19.289

Finland 20.455 24.570

France 32.514 33.688

Germany 27.027 32.012

Greece 6.579 18.337

Ireland 18.103 28.266

Italy 37.5 32.206

Netherlands 30.833 31.342

Norway 46.739 42.174

Portugal 48.438 35.903

Spain 17.241 27.389

Sweden 33.984 26.113

Switzerland 31.849 31.529

UK 28.117 30.494

USA 27.262 29.277

Table 5. Descriptive statistics of GRI by industry

Industry Mean Std. Dev.

1 27.699 29.975

2 29.957 31.618

22

3 27.371 31.010

23

Table 6. Bivariate correlations

1 2 3 4 5 6 7 8 9 10

1. GRI 1

2. InformationAsymmetry -0.0308 1

3. DNCRI

4. FRQ

0.0102

-0.0157

0.0559

-0.0018

1

0.0572 1

5. Industry -0.0027 0.0538 0.0344 0.0101 1

6. ProprietaryCosts -0.0211 0.0010 0.1044 -0.0072 -0.0163 1

7. Size 0.0387 -0.0700 -0.4909 0.0102 -0.0205 -0.1122 1

8. Growth -0.0347 0.0010 -0.0209 0.0004 0.0113 0.0037 0.0203 1

9. Leverage -0.0654 -0.0030 -0.0073 -0.0064 0.0117 -0.0688 0.0271 0.0409 1

10. ROA -0.0191 -0.0024 00142 -0.0018 0.0223 -0.0005 -0.0744 0.0005 -0.0005 1

24

Table 7 . The impact of voluntary disclosure of CSR on asymmetric information. Evidence for

strongly stakeholder-orientated environments.

Model Ia Model Ib

InformationAsymmetry Coef. P> |Z| Coef. P> |Z|

GRI -3.28e-07*** 0.000 -1.19E-07** 0.012

DNCRI dropped

GRI_DNCRI -2.94E-07*** 0.000

FRQ -1.01e-07*** 0.000 -1.20E-07*** 0.000

Industry 9.12e-06** 0.010 7.52E-06* 0.052

ProprietaryCosts 0.00086** 0.038 0.0007788** 0.037

Size -2.89e-06*** 0.000 -3.02E-06*** 0.000

Growth 3.66e-11 0.592 1.04E-10** 0.013

Leverage 1.83e-08** 0.010 1.89E-08*** 0.000

ROA -1.46e-07*** 0.000 -1.52E-07*** 0.000

Year Yes Yes

Country Yes Yes

Z 830.26 1793.27

m1 -1.15 -1.19

m2 -0.38 -0.32

Hansen 86.31 112.67

# To avoid endogeneity problems, for all numerical variables, including interaction variables,

lags t-1 to t-2 are used as instruments.

Notes:

i) Heteroscedasticity-consistent asymptotic standard error in parentheses.

ii) ***, ** and * indicate significance at the 1%, 5% and 10% levels respectively.

iii) Z is a Wald test of the joint significance of the reported coefficients, asymptotically

distributed as χ2 under the null hypothesis of no relationship; degrees of freedom and

significance in parentheses.

iv) mi (m1 and m2) is a serial correlation test of the order i using residuals in first differences,

asymptotically distributed as N(0,1) under the null hypothesis of no serial correlation.

v) Hansen is a test of over-identifying restrictions, asymptotically distributed as χ 2 under the

null hypothesis of non-correlation between the instruments and the error term; degrees of

freedom and significance in parentheses.

25

Table 8 . Robust analysis. The impact of voluntary disclosure of CSR on asymmetric

information. Evidence for strongly stakeholder-orientated environments.

Lower stakeholder protection Greater stakeholder protection

Tobin Coef. P> |Z| Coef. P> |Z|

Disclosure -1.861*** 0.000 -5.107*** 0.000

FRQ 0.463*** 0.000 -0.006 0.175

Industry 0.686*** 0.000 dropped

ProprietaryCosts -1.501 0.936 dropped

Size -0.203*** 0.001 -2.393*** 0.000

Growth -0.003*** 0.000 0.000** 0.015

Leverage 0.008*** 0.000 0.037*** 0.000

ROA 10.396*** 0.000 4.843*** 0.000

Year Yes Yes

Country Yes Yes

Z 912372.67 1.26E+07

m1 -1.93 -3.41

m2 0.44 -1.28

Hansen 138.10 127.53



Notes:



iii) Z is a Wald test of the joint significance of the reported coefficients, asymptotically distributed

as χ2 under the null hypothesis of no relationship; degrees of freedom and significance in

parentheses.

iv) mi (m1 and m2) is a serial correlation test of order i using residuals in first differences,


v) Hansen is a test of over-identifying restrictions, asymptotically distributed as χ 2 under the null

hypothesis of non-correlation between the instruments and the error term; degrees of freedom

and significance in parentheses.

26

Table 9 . Robust analysis. The impact of voluntary disclosure of CSR on asymmetric

information. Evidence for strongly stakeholder-orientated environments.

Lower stakeholder protection Greater stakeholder protection

Tobin Coef. P> |Z| Coef. P> |Z|

GRI_2 -1.095*** 0.000 -2.943*** 0.000

FRQ 0.285*** 0.000 -0.004 0.413

Industry 1.282*** 0.000 dropped

ProprietaryCosts 34.432* 0.096 dropped

Size -0.166*** 0.002 -2.438*** 0.000

Growth -0.008*** 0.000 0.000** 0.011

Leverage 0.013*** 0.000 0.033*** 0.000

ROA 10.519*** 0.000 4.843*** 0.000

Year Yes Yes

Country Yes Yes

Z 1.11E+06 1.06E+07

m1 -1.98 -3.61

m2 -0.16 -1.21

Hansen 129.96 124.75



Notes:




distributed as χ2 under the null hypothesis of no relationship; degrees of freedom and







27

Table 10 . The impact of information asymmetries on voluntary disclosure regarding CSR.

Evidence for strongly stakeholder-orientated environments.

Model II

GRI Coef. P> |Z|

InformationAsymmetry -6154.011*** 0.005

DNCRI dropped

InformationAsymmetry*DNCRI 12750.340*** 0.000

FRQ -0.030*** 0.000

Industry 21.066*** 0.000

ProprietaryCosts -215.415 0.900

Size 0.284*** 0.000

Growth 0.060*** 0.000

Leverage -0.060*** 0.000

ROA -0.020*** 0.000

Year Yes

Country Yes

Z 2167.80

m1 -1.86

m2 -1.12

Hansen 149.51



Notes:




distributed as χ2 under the null hypothesis of no relationship, degrees of freedom and







28

REFERENCES

Adams, C.A. (2002). Internal organisational factors influencing corporate social and ethical reporting. Accounting, Auditing and Accountability 15 (2): 223-250.

Akerlof, G. A. (1970). The market for ‘lemons’: quality uncertainty and the market mechanism. Aug, 84(3), 488-500.

American Accounting Association (AAA). 1977. Statement on Accounting Theory and Theory Acceptance. Sarasota, FL: AAA.

Al-Tuwaijri, S. A., Christensen, T. E., & Hughes Ii, K. E. (2004). The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equations approach. Accounting, organizations and society, 29(5), 447-471.

Arellano, M., & S. Bond. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies 58(2): 277-297.

Ascioglu, A., Hegde, S. P., Krishnan, G. V., & McDermott, J. B. (2012). Earnings management and market liquidity. Review of Quantitative Finance and Accounting, 38(2), 257-274.

Ball, R., Kothari, S., & Robin, A. (2000). The effect of international institutional factors on properties of accounting earnings. Journal of Accounting and Economics 29 (1), 1-51

Ball, R. & L. Shivakumar. (2006). The Role of Accruals in Asymmetrically Timely Gain and Loss Recognition. Journal of Accounting Research 44 (2): 207-242.

Barclay, M. J., & Smith Jr, C. W. (1988). Corporate payout policy: Cash dividends versus open-market repurchases. Journal of Financial Economics,22(1), 61-82.

Berger, P. G., & Hann, R. N. (2007). Segment profitability and the proprietary and agency costs of disclosure. The Accounting Review, 82(4), 869-906.

Bewley, K., & Li, Y. (2000). Disclosure of environmental information by Canadian manufacturing companies: a voluntary disclosure perspective. Advances in environmental accounting & management, 1, 201-226.

Blanco Peláez, B. (2010). Segment disclosure, cost of capital and investment efficiency.

Botosan, C. A. (1997). Disclosure level and the cost of equity capital.Accounting review, 323-349.

Botosan, C. A., & Plumlee, M. A. (2002). A re‐examination of disclosure level and the expected

cost of equity capital. Journal of accounting research, 40(1), 21-40.

Botosan, C. A., & Stanford, M. (2005). Managers' motives to withhold segment disclosures and the effect of SFAS No. 131 on analysts' information environment. The Accounting Review, 80(3), 751-772.

29

Brady, A., & Honey, G. (2007). Corporate reputation: Perspectives of measuring and managing a principal risk. The Chartered Institute of Management Accountants, London. www.cimaglobal.com.

Brennan, M. J., & Subrahmanyam, A. (1996). Market microstructure and asset pricing: On the compensation for illiquidity in stock returns. Journal of financial economics, 41(3), 441-464.

Brockman, P., Khurana, I. K., & Martin, X. (2008). Voluntary disclosures around share repurchases. Journal of Financial Economics, 89(1), 175-191.

Brown, S., & Hillegeist, S. A. (2007). How disclosure quality affects the level of information asymmetry. Review of Accounting Studies, 12(2-3), 443-477.

Bushee, B. J., & Miller, G. S. (2012). Investor relations, firm visibility, and investor following. The Accounting Review, 87(3), 867-897.

Campbell, J. L. (2007). Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Academy of Management Review, 32: 946 –96

Campbell, J. & Lindberg, L. (1991). The evolution of governance regimes. In: Campbell, J. (Ed.), Governance of the American Economy.Cambridge University Press, Cambridge, pp. 319–335

Chi, J. (2005). Understanding the endogeneity between firm value and shareholder rights. Financial Management, 34 (4): 65-76.

Claessens, S., & Fan, J. (2002). Corporate governance in Asia: A survey. International Review of Finance, 3: 71-103.

Clarkson, G., Jacobsen, T. E., & Batcheller, A. L. (2007). Information asymmetry and information sharing. Government Information Quarterly, 24(4), 827-839.

Clarkson, P.M., Li, Y., Richardson, G.D. & Vasvari, F.P. (2008). Revisiting the relation between environmental performance and environmental disclosure: an empirical analysis. Accounting, Organizations and Society 33(4-5): 303-327.

Dhaliwal, D., Li, O., Tsang, A. & Yang, Y. (2011). Voluntary non-financial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86 (1), 59-100.

Dhaliwal, D. S., Radhakrishnan, S., Tsang, A., & Yang, Y. G. (2012). Nonfinancial disclosure and analyst forecast accuracy: International evidence on corporate social responsibility disclosure. The Accounting Review, 87(3), 723-759.

Diamond, D. W. (1985). Optimal release of information by firms. The Journal of Finance, 40(4), 1071-1094.

Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure, liquidity, and the cost of capital. The journal of Finance, 46(4), 1325-1359.

DiMaggio, P. J., & Powell, W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48: 147-160

Donnelly, R. & Mulcahy, M. (2008). Board structure, ownership, and voluntary disclosure in Ireland. Corporate Governance: An International Review 16(5): 416-429.

30

Dragomir, V., & Cristina, M. (2009). Corporate governance in the European Union: The implications for financial and narrative reporting. International Journal of Business and Economics 9(1): 53-64.

Du, S., Bhattacharya, C. B., & Sen, S. (2010). Maximizing business returns to corporate social responsibility (CSR): The role of CSR communication.International Journal of Management Reviews, 12(1), 8-19.

Dye, R.A. (1986). Proprietary and Nonproprietary Disclosures. Journal of Business 59, 331-366.

Easley, D., Hvidkjaer, S., & O’hara, M. (2002). Is information risk a determinant of asset returns?. The journal of finance, 57(5), 2185-2221.

Easley, D., & O'hara, M. (2004). Information and the cost of capital. The journal of finance, 59(4), 1553-1583.

Easley, D., & O’Hara, M. (2010). Liquidity and valuation in an uncertain world.Journal of Financial Economics, 97(1), 1-11.

Elliott, R. K., & Jacobson, P. D. (1994). Costs and benefits of business information disclosure. Accounting Horizons, 8, 80-80.

Elliott, W. B., Jackson, K. E., Peecher, M. E., & White, B. J. (2013). The Unintended Effect of Corporate Social Responsibility Performance on Investors' Estimates of Fundamental Value. The Accounting Review, 89(1), 275-302.

Ferrer, A. & Quintanilla, J. (1998). Multinationals, national identity, and the management of HRM: Anglo-Saxonisation and its limits. International Journal of Human Resource Management, 9 (4), 710-731

Frias-Aceituno, JV, Rodriguez-Ariza, L & Garcia-Sanchez, I. (2012). The Role of the Board in the Dissemination of Integrated Corporate Social Reporting. Corporate Social Responsibility and Environmental Management.

Frost, C., Gordon, E., & Pownall, G. (2008). Financial reporting and disclosure quality, and emerging market companies' access to capital in global markets.Social Science Research Network.

Gamper-Rabindran, S. (2006). Did the EPA's voluntary industrial toxics program reduce emissions? A GIS analysis of distributional impacts and by-media analysis of substitution. Journal of Environmental Economics and Management,52(1), 391-410.

García, E., & Sánchez, J. P. (2006). Un estudio meta-analítico de los factores determinantes de la revelación de información. Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad, 35(132), 761-788.

Ghosh, A. A., & Moon, D. (2010). Corporate debt financing and earnings quality. Journal of

Business Finance & Accounting, 37(5‐6), 538-559.

Glosten, L. R., & Milgrom, P. R. (1985). Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of financial economics, 14(1), 71-100.

31

Gray, R., Owen, D., & Dams, C. (1996). Accounting and Accountability: Changes and Challenges in Corporate Social and Environmental Reporting (Prenctice Hall Europe, Hemel Hempstead).

Greenstein, M.M. & Sami, H. (1994). The impact of the SEC’s segment disclosure requirement on the bid-ask spread. The Accounting Review 69, 179-199.

Griffin, P. A., & Lont, D. H. (2010). Do investors care about auditor dismissals and resignations? What drives the response?. Auditing: A Journal of Practice & Theory, 29(2), 189-214.

Grossman, S. J., & Hart, O. D. (1980). Takeover bids, the free-rider problem, and the theory of the corporation. The Bell Journal of Economics, 42-64.

Grossman, S. J. (1981). The informational role of warranties and private disclosure about product quality. Journal of law and economics, 461-483.

Harris, M. S. (1998). The association between competition and managers’ business segment reporting decisions. Journal of Accounting Research 36, 111-128.

Hayes, R.& Lundholm. R., (1996). Segment Reporting to the Capital Market in the Presence of a Competitor. Journal of Accounting Research 34, 261-279.

Healy, P. M., Hutton, A. P., & Palepu, K. G. (1999). Stock performance and intermediation changes surrounding sustained increases in disclosure*.Contemporary accounting research, 16(3), 485-520.

Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of accounting and economics, 31(1), 405-440.

Holland, J. (1998). Private voluntary disclosure, financial intermediation and market

efficiency. Journal of Business Finance & Accounting, 25(1‐2), 29-68.

Hope, O. K., & Thomas, W. B. (2008). Managerial empire building and firm disclosure. Journal of Accounting Research, 46(3), 591-626.

Hughes, S. B., Anderson, A., & Golden, S. (2001). Corporate environmental disclosures: are they useful in determining environmental performance?. Journal of Accounting and Public Policy, 20(3), 217-240.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360. Kim, O., & Verrecchia, R. E. (1994). Market liquidity and volume around earnings announcements. Journal of Accounting and Economics, 17(1), 41-67.

Kolk, A., & P. Perego. (2008). Determinants of the adoption of sustainability assurance statements: An international investigation. Business Strategy and the Environment 19(3): 182-198

Lakhal, F. (2008). Stock market liquidity and information asymmetry around voluntary earnings disclosures: New evidence from France. International Journal of Managerial Finance, 4(1), 60-75.

32

Lang, M. H., & Lundholm, R. J. (1996). Corporate disclosure policy and analyst behavior. Accounting review, 467-492

Lang, M. H., & Lundholm, R. J. (2000). Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock?*.Contemporary accounting research, 17(4), 623-662..

La Porta, R. , F. Lopez-de-Silane, A. Shleifer, & R. W. Vishny. (1998). Law and Finance. Journal of Political Economy 106(6): 1113-1155.

Larrán, M., & García-Meca, E. (2004). La relevancia de la información no-financiera en la estrategia empresarial de divulgación unitaria: percepciones empresa-analista sobre su utilidad, RVEH 12: 127-145.

Lefort, F. & González, R. (2008). Hacia un mejor gobierno corporativo en Chile. Abante 11(1), 17-37.

Leuz, C., & Verrecchia, R. E. (2000). The economic consequences of increased disclosure. Journal of accounting research, 38, 91-136.

Lev, B. (1992). Information disclosure strategy. California Management Review,34(4), 9-32.

Levy, D. L., & A. Kolk. (2002). Strategic responses to global climate change: Conflicting pressures on multinationals in the oil industry. Business and Politics 4(3): 275-300.

Marginson, P. & Sisson, K. (1994). The Structure of Transnational Capital in Europe: The Emerging Euro-Company and its Implications for Industrial Relations. In Hyman, R. & Ferner, A. (eds) New Frontiers in European Industrial Relations. Oxford, Blackwell

Marquardt, C., & Wiedman, C. I. (1998). Voluntary Disclosure, Information Asymmetry, and Insider Selling through Secondary Equity Offerings*.Contemporary Accounting Research, 15(4), 505-537.

Martínez-Ferrero, J., & García-Sánchez, I. M. (2014). Is corporate social responsibility an entrenchment strategy? Evidence in stakeholder protection environments. Review of Managerial Science, 1-26.

Matsumura, E. M., Prakash, R., & Vera-Muñoz, S. C. (2011). Voluntary disclosures and the firm-value effects of carbon emissions. Manuscript submitted for publication.

Matten, D., & J. Moon. (2008). “Implicit" and "explicit" CSR: A conceptual framework for a comparative understanding of corporate social responsibility. The Academy of Management Review 33(2): 404-424.

Mazumdar, S. C., & Sengupta, P. (2005). Disclosure and the loan spread on private debt. Financial analysts journal, 83-95.

Moneva, J.M. & Llena, F. (2000). The environmental disclosures in the annual reports of large companies in Spain. European Accounting Review 9(1): 7-29.

Nikolaeva, R. & Bicho, M. (2011). The role of institutional and reputational factors in the voluntary adoption of corporate social responsibility reporting standards. Journal of the Academy of Marketing Science 39 (1), 136-157.

Patten, D. M. (1992). Intra-industry environmental disclosures in response to the Alaskan oil spill: a note on legitimacy theory. Accounting, Organizations and Society, 17(5), 471-475.

33

Patten, D. M. (2002). The relation between environmental performance and environmental disclosure: a research note. Accounting, Organizations and Society 27 (8): 763-773.

Perez-Batres, L.A., Miller van V., Pisani, M.J., Henriques, I., & Renau-Sepulveda, J.A., (2012). Why Do Firms Engage in National Sustainability Programs and Transparent Sustainability Reporting? Evidence from Mexico’s Clean Industry Program. Management International Review 52, 107-136.

Plumlee, M., Brown, D., & Marshall, S. (2008). The impact of voluntary environmental disclosure quality on firm value. Available at SSRN 1140221.

Prado, J. M., García, I. M., & Gallego, I. (2008). The divulgation of information on corporate social responsibility viewed through the theory of political costs.

Prado-Lorenzo, J. M., & García-Sánchez, I.M. (2010). The role of the board of directors in disseminating relevant information on greenhouse gases. Journal of Business Ethics 97(3): 391-424.

Prado-Lorenzo, J.M., Gallego-Álvarez, I.& García-Sánchez, I.M. (2009). Stakeholder engagement and corporate social responsibility reporting: the ownership structure effect. Corporate Social Responsibility and Environmental Management 16 (2): 94-107.

Prado-Lorenzo, J. M., García-Sánchez, I. M. & Gallego-Álvarez, I. (2012). Effects of Activist shareholding on corporate social responsibility reporting ractices: an empirical study in Spain. Journal of Economics, Finance and Administrative Science, 17 (32), 7-16.

Reverte, C. (2009). Determinants of Corporate Social Responsibility Disclosure Ratings by Spanish Listed Firms. Journal of Business Ethics 88 (2): 351-366.

Richardson, A. J. & Welker, M. (2001). Social Disclosure, Financial Disclosure and the Cost of Capital. Accounting, Organizations and Society 26(7-8): 597–616. doi:10.1016/S0361-3682(01)00025-3.

Richardson, S. (2000). Accruals and Short Selling: An Opportunity Foregone?.

Roe, M. J. (1991). A Political Theory of American Corporate Finance.Columbia Law Review 91 : 10-67.

Roy, W. (1997). Socializing capital: the rise of the large industrial corporation in America. Princeton: Princeton University Press.

Ronen, J., & Yaari, V. L. (1993). The disclosure policy of the firm in an efficient market. Review of Quantitative Finance and Accounting, 3(3), 311-324.

Samaha, K., Dahawy, K., Hussainey, K., & Stapleton, P. (2012). The extent of corporate governance disclosure and its determinants in a developing market: The case of Egypt. Advances in Accounting, incorporating Advances in International Accounting, in press.

Schuler, D. A., & Cording, M. (2006). A corporate social performance–corporate financial performance behavioral model for consumers. Academy of Management Review, 31(3), 540-558.

Simnett, R., A. Vanstraelen, & W. F. (2009). Assurance on sustainability reports: An international comparison. The Accounting Review, 84 (3): 937-967.

34

Verrecchia, R. E. (1983). Discretionary disclosure. Journal of accounting and economics, 5, 179-194.

Verrecchia, R. E. (2001). Essays on disclosure. Journal of accounting and economics, 32(1), 97-180.

Wagenhofer, A., (1990). Voluntary Disclosure with a Strategic Opponent. Journal of Accounting and Economics 12, 341-363

Williams, M.S. & Wern Pei, C.H. (1999). Corporate social disclosures by listed companies on their web sites: An international comparison. The International Journal of Accounting 34 (3): 389–419.

Zhang, X. (2006). Information uncertainty and stock returns. The Journal of Finance, 61(1), 105-137.

the causal links between voluntary csr disclosure and€¦ · of csr voluntary disclosure – the...

Documents