CSR Performance, Financial Reporting, and Investors’ Perception on Financial Reporting
Abstract
:1. Introduction
2. Literature Review and Hypothesis Development
2.1. CSR and Financial Reporting Quality
2.2. CSR and Value Relevance of Financial Reporting
3. Research Design
3.1. Empirical Model
β4EMPLOYit + β5INVRECit + β6MTBit + β7LEVit + β8ΔQit +
β9TURNit + β10ROAit + β11LOSSit + β12LAGLOSSit + β13BIG4it +
β14STDCFO + β15STDSALES + Year and Industry Dummies + εit
+ Year and Industry Dummies + εit
3.2. Sample and Data
4. Results
4.1. Descriptive Statistics
4.2. Correlation Analysis
4.3. Main Results of Regression
4.3.1. CSR and Financial Reporting Quality
4.3.2. CSR and Investors’ Perception of Financial Reporting
5. Additional Tests
5.1. CSR and Discretionary Accrual
+ IBEIit / TAit-1 + + εit
5.2. CSR and Real Earnings Management
α4ΔRECit−1/TAit−1 + εit
6. Conclusions
Acknowledgments
Author Contributions
Conflicts of Interest
Appendix A. Definition of Variables
Dependent Variables | |
AQ | Accrual Quality, firm-level standard deviation of five-year residuals from regression model matching current accruals with past, present and future cash flows (where revenues and Property, Plant and Equipment included) |
DA | Discretionary Accrual, measured using the performance-adjusted cross-sectional variation of the modified Jones model. |
REM | Combined Real Earnings Management, equal to the sum of individual real activities manipulation proxies, measured as Ann_CFO − Abn_PROD + AB_EXP. |
RETt+1 | Return at t + 1, one year a head buy-and-hold returns measured by the firm’s stock price at time t + 1 minus stock price at time t. |
Independent Variables | |
CSR | An indicator variable coded one if the firm is listed in the 100 best citizens at a given year by Corporate Responsibility (CR) Magazine, zero otherwise. |
CSR_best | An indicator variable coded one if the firm is appeared in the CR 100 best citizens ranking list for more than 50% of the cases in the study period (eight or more times in fifteen years period), zero otherwise. |
CSR_poor | An indicator variable coded one if the firm is never listed in the CR 100 best citizens ranking in the study period (zero appearance in fifteen years period), zero otherwise. |
EPS/ΔEPS | Earnings Per Share/Change in Earnings Per Share, both divided by beginning market value of equity. |
Control Variables | |
LNTA | Natural logarithm of the total assets. |
LNMVE | Natural logarithm of the total market value of equity. |
EMPLOY | The squared root of total number of employees. |
MTB | Market to Book Ratio, measured by dividing market value of equity to its book value of equity. |
LEVE | Leverage, equal to total liabilities scaled by total assets. |
ΔQit | Change in Equity Issuance, measured as the annual percentage change in common equity from previous year to current year. |
TURN | Turnover, measured as sales divided by total assets. |
ROA | Return on Assets, measured as income before extraordinary items divided by beginning total assets. |
LOSS | An indicator variable coded one if the firm reported loss in the current year, zero otherwise. |
LAGLOSS | An indicator variable coded one if the firm reported loss in the prior year, zero otherwise. |
BIG4 | An indicator variable coded one if the firm is audited by one of the big form audit firms during the year, zero otherwise. |
STDCFO | Cash Flow Volatility, measured as the standard deviation of cash flow from operations (divided beginning total assets), over five years from t − 4 to t. |
STDSALES | Sales Flow Volatility, measured as the standard deviation of sales (divided by beginning total assets), over five years from t − 4 to t. |
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Non-CSR Observations | CSR Observations | Difference | |||||||
---|---|---|---|---|---|---|---|---|---|
Variable | Min. | Max. | Mean (A) | Std. Dev. | Min. | Max. | Mean (B) | Std. Dev. | A-B |
AQ | 0.0042 | 0.2155 | 0.0372 | 0.0345 | 0.0042 | 0.1437 | 0.0293 | 0.0202 | 0.0090 *** |
LNTA | 4.7687 | 12.509 | 8.6858 | 1.2592 | 6.3272 | 12.334 | 9.5705 | 1.1296 | −0.8848 *** |
LNMVE | 5.8799 | 12.365 | 8.9919 | 1.1850 | 7.5894 | 12.263 | 10.1051 | 1.1456 | −1.1132 *** |
EMPLOY | 0.6356 | 18.974 | 5.1981 | 3.5636 | 1.2649 | 18.862 | 7.2205 | 3.8333 | −2.0224 *** |
INVREC | 0.0111 | 0.706 | 0.2263 | 0.1310 | 0.0228 | 0.4722 | 0.1994 | 0.0972 | 0.0268 *** |
MTB | 0.5174 | 76.49 | 3.8001 | 3.3432 | 1.0103 | 17.824 | 4.3211 | 2.6122 | −0.521 ** |
CFO | −0.064 | 0.4086 | 0.1413 | 0.0704 | 0.0184 | 0.3553 | 0.1687 | 0.0670 | −0.0274 *** |
LEVE | 0.0744 | 0.9562 | 0.5210 | 0.1683 | 0.1401 | 0.9143 | 0.4976 | 0.1707 | 0.0234 * |
ΔQ | −0.4955 | 0.9491 | 0.0620 | 0.1118 | −0.301 | 0.8539 | 0.0465 | 0.1117 | 0.0155 * |
TURN | 0.1381 | 3.7685 | 0.9817 | 0.6396 | 0.2345 | 3.1371 | 0.9544 | 0.4420 | 0.0273 |
ROA | −0.2254 | 0.2285 | 0.0693 | 0.0556 | −0.08 | 0.2179 | 0.0941 | 0.0509 | −0.0248 *** |
LOSS | 0 | 1 | 0.0814 | 0.2735 | 0 | 1 | 0.0357 | 0.1859 | 0.0457 ** |
LAGLOSS | 0 | 1 | 0.0915 | 0.2884 | 0 | 1 | 0.0401 | 0.1968 | 0.0513 *** |
BIG4 | 0 | 1 | 0.2217 | 0.4155 | 0 | 1 | 0.1875 | 0.3911 | 0.0343 |
STDCFO | 0.0012 | 0.1829 | 0.0336 | 0.0253 | 0.0021 | 0.1766 | 0.0363 | 0.0269 | −0.0026 |
STDSALES | 0.0049 | 1.1336 | 0.1218 | 0.1182 | 0.0153 | 0.6478 | 0.1157 | 0.0923 | 0.0061 |
EPS | −0.321 | 0.1653 | 0.0432 | 0.0466 | −0.124 | 0.1506 | 0.0517 | 0.031 | −0.0085 *** |
RET | −0.0394 | 0.0529 | 0.0001 | 0.0045 | −0.019 | 0.0105 | −0.0000 | 0.0021 | 0.0001 |
RETt+1 | −0.0000 | 0.0042 | −0.019 | 0.0095 | 0.0000 | 0.0019 | −0.0085 | ||
Number of Observations | 2048 | 281 |
Variables | CSR | AQ |
---|---|---|
CSR | −0.09 *** | |
AQ | −0.09 *** | |
LNTA | 0.22 *** | −0.27 *** |
LNMVE | 0.29 *** | −0.21 *** |
EMPLOY | 0.18 *** | −0.14 *** |
INVREC | −0.07 *** | 0.3 *** |
MTB | 0.03 * | 0.03 |
LEVE | −0.05 * | −0.11 *** |
ΔQ | −0.04 ** | 0.15 *** |
TURN | −0.01 | 0.12 *** |
ROA | 0.14 *** | 0.02 |
LOSS | −0.05 | 0.03 |
LOSSLAG | −0.06 ** | −0.02 |
BIG4 | −0.03 | 0.05 ** |
STDCFO | 0.03 | 0.42 *** |
STDSALES | −0.02 | 0.34 *** |
EPS | 0.06 * | −0.04 * |
RET | −0.01 | −0.01 |
RETt+1 | 0.01 | −0.04 * |
Panel A (DV = AQ) | Panel B (DV = AQ) | ||||
---|---|---|---|---|---|
Variable | Predicted Sign | Estimate | t-value | Estimate | t-value |
CSR | − | −0.0038 | −2.13 ** | ||
CSR_best | − | −0.0057 | −2.49 ** | ||
LNTA | − | –0.0031 | −2.48 ** | −0.0032 | −2.52 ** |
LNMVE | − | 0.0009 | 0.72 | 0.0010 | 0.8 |
EMPLOY | − | –0.0000 | −0.15 | −0.0000 | −0.09 |
INVREC | + | 0.0613 | 11.05 *** | 0.0620 | 11.17 *** |
MTB | + | 0.0008 | 5.72 *** | 0.0008 | 5.71 *** |
LEVE | + | 0.0006 | 0.14 | 0.0006 | 0.15 |
ΔQ | + | 0.0129 | 2.73 ** | 0.0129 | 2.74 ** |
TURN | + | –0.0112 | −8.24 *** | −0.0114 | −8.31 *** |
ROA | + | –0.0573 | −4.38 *** | −0.0577 | −4.42 *** |
LOSS | + | –0.0034 | −1.32 | −0.0035 | −1.32 |
LOSSLAG | + | –0.0026 | −1.3 | −0.0027 | −1.31 |
BIG4 | − | –0.0026 | −1.92 ** | −0.0026 | −1.9 * |
STDCFO | + | 0.2797 | 13.06 *** | 0.2794 | 13.06 *** |
STDSALES | + | 0.0847 | 14.5 *** | 0.0846 | 14.5 *** |
Constant | 0.0338 | 5.37 *** | 0.0332 | 5.26 *** | |
Industry and year fixed effects | YES | YES | |||
Number of Observations | 2329 | 2329 | |||
Adj-R2 | 0.36 | 0.36 |
Panel A (DV = RETt+1) | Panel B (DV = RETt+1) | |||
---|---|---|---|---|
Variable | Estimate | t-Value | Estimate | t-Value |
EPS | −0.0047 | −1.74 * | −0.0044 | −1.66 * |
ΔEPS | 0.0099 | 4.16 *** | 0.0094 | 4.05 *** |
CSR | −0.0000 | 0.08 | ||
CSR_best | 0.0001 | 0.15 | ||
CSRxEPS | 0.0033 | 0.56 | ||
CSRxΔEPS | −0.0049 | −1.1 | ||
CSR bestxEPS | 0.0025 | 0.22 | ||
CSR bestxΔEPS | −0.0051 | −0.55 | ||
Intercept | −0.0000 | −0.14 | −0.0000 | −0.2 |
Industry and year fixed effects | YES | YES | ||
Number of Observations | 3173 | 3173 | ||
Adj-R2 | 0.0056 | 0.0052 |
Panel A (DV = DA) | Panel B (DV = DA) | |||
---|---|---|---|---|
Variable | Estimate | t-Value | Estimate | t-Value |
CSR | −0.0090 | −2.31 ** | ||
CSR best | −0.0151 | −3.03 ** | ||
LNTA | 0.0171 | 6.95 *** | 0.0170 | 6.91 *** |
LNMVE | −0.0182 | −7.4 *** | −0.0180 | −7.31 *** |
EMPLOY | 0.0009 | 2.33 ** | 0.0010 | 2.41 ** |
INVREC | 0.1268 | 12.7 *** | 0.1280 | 12.83 *** |
MTB | −0.0012 | −3.96 *** | −0.0012 | −3.99 *** |
LEVE | 0.0264 | 2.93 ** | 0.0264 | 2.93 ** |
ΔQ | −0.0162 | −1.82 * | −0.0164 | −1.84 * |
TURN | −0.0197 | −7.95 *** | −0.0199 | −8.04 *** |
ROA | 0.1167 | 4.61 *** | 0.1164 | 4.61 *** |
LOSS | −0.0125 | −2.52 ** | −0.0124 | −2.51 ** |
LOSSLAG | 0.0230 | 5.8 *** | 0.0229 | 5.78 *** |
BIG4 | −0.0098 | −3.49 *** | −0.0098 | −3.48 *** |
STDCFO | −0.1985 | −5.04 *** | −0.1985 | −5.04 *** |
STDSALES | 0.0114 | 1.25 | 0.0151 | 1.25 |
Constant | −0.012 | −1.04 | −0.0133 | −1.15 |
Industry and Year fixed effects | YES | YES | ||
Number of Observations | 3173 | 3173 | ||
Adj-R2 | 0.16 | 0.16 |
Panel A: Full Sample (DV = REM) | Panel B: AQ Sample (DV = REM) | |||
---|---|---|---|---|
Variable | Estimate | t-Value | Estimate | t-Value |
CSR_best | 0.0892 | 2.83 ** | 0.0945 | 3.12 ** |
LNTA | −0.2188 | −13.96 *** | −0.2780 | −16.59 *** |
LNMVE | 0.1848 | 11.83 *** | 0.2152 | 12.53 *** |
EMPLOY | 0.0157 | 5.86 *** | 0.0214 | 7.31 *** |
INVREC | 0.3079 | 4.84 *** | 0.2512 | 3.42 *** |
MTB | 0.0110 | 5.71 *** | 0.0065 | 3.36 *** |
LEVE | −0.2349 | −4.08 *** | −0.1696 | −2.82 ** |
ΔQ | 0.1264 | 2.22 ** | 0.0887 | 1.41 |
TURN | −0.1845 | −11.68 *** | −0.1903 | −10.48 *** |
ROA | 0.9462 | 12.08 *** | 0.9661 | 10.21 *** |
LOSS | 0.1405 | 4.4 *** | 0.1183 | 3.39 *** |
LOSSLAG | −0.0292 | −1.15 | −0.0197 | −0.74 |
BIG4 | 0.0489 | 2.74 ** | 0.0421 | 2.33 ** |
STDCFO | 0.8642 | 3.43 *** | 0.4805 | 1.7 * |
STDSALES | −0.10186 | −1.72 * | −0.0340 | −0.44 |
Constant | 0.18580 | 2.5 ** | 0.4321 | 5.16 *** |
Industry and year fixed effects | YES | YES | ||
Number of Observations | 3171 | 2327 | ||
Adj-R2 | 0.38 | 0.39 |
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Timbate, L.; Park, C.K. CSR Performance, Financial Reporting, and Investors’ Perception on Financial Reporting. Sustainability 2018, 10, 522. https://doi.org/10.3390/su10020522
Timbate L, Park CK. CSR Performance, Financial Reporting, and Investors’ Perception on Financial Reporting. Sustainability. 2018; 10(2):522. https://doi.org/10.3390/su10020522
Chicago/Turabian StyleTimbate, Lukas, and Cheong Kyu Park. 2018. "CSR Performance, Financial Reporting, and Investors’ Perception on Financial Reporting" Sustainability 10, no. 2: 522. https://doi.org/10.3390/su10020522
APA StyleTimbate, L., & Park, C. K. (2018). CSR Performance, Financial Reporting, and Investors’ Perception on Financial Reporting. Sustainability, 10(2), 522. https://doi.org/10.3390/su10020522