Corporate Social Responsibility Disclosure and Stock Market Liquidity: The Case of Jordan

Abstract

This study aims to evaluate the level of corporate social responsibility (CSR) disclosure in the annual reports of Jordanian companies, and to examine its impact on stock market liquidity. The findings indicate a significant variation in the extent of CSR disclosure among the companies, with an average disclosure rate of 48.12% of the applicable items. The regression analysis results show no significant relationship between CSR disclosure and the bid–ask spread. The study concludes that investors do not heavily rely on CSR disclosures when making decisions about trading involving Jordanian companies. This lack of dependence may be attributed to such information’s perceived inaccuracy or incompleteness. Investors may turn to alternative sources of information, such as news sources, and even advice from their networks.

1. Introduction

Corporate social responsibility (CSR) encompasses a range of responsibilities that businesses have toward society and the environment. This means that businesses need to consider their economic, legal, ethical, and societal obligations [1]. This includes businesses that commit to helping their communities grow and improve while eliminating practices that do not align with the best interests of the public [2]. Such efforts can improve how stakeholders perceive the company and, as a result, contribute to the company’s overall performance [3].

Gray et al. [4] describe CSR as the process of effectively communicating how a company’s economic activities impact society and the environment to specific groups in society and to society as a whole. CSR encourages companies to be responsible for a wider group of people, including employees, customers, communities, and the environment. This goes beyond their usual focus on making money and satisfying shareholders. By embracing CSR, companies acknowledge that what they do matters and can have a positive impact on society. A professional approach to CSR emphasizes the importance of companies being transparent, ethical, and sustainable in their operations. The goal is to create a corporate culture that is more inclusive and responsible, aligning with what society expects and values.

Engaging in CSR practices can have significant economic consequences for companies, often yielding favorable outcomes. Two notable benefits in this regard are the potential for a decreased cost of capital and increased stock market liquidity. Dhaliwal et al. [5] demonstrate that companies with high-quality CSR performance experience a decrease in their cost of equity capital, showcasing the practical benefits of promoting and adopting exemplary CSR practices. In addition, companies exhibiting outstanding CSR performance draw the interest of institutional investors and analysts, leading to lower forecast errors. Furthermore, when companies embrace CSR practices, it can positively influence the liquidity of their stocks in the stock market. When a company gets involved in CSR initiatives and builds a good reputation in the eyes of the public, it can attract a wider range of investors with different backgrounds. This increased interest from investors can result in more trading activity and better liquidity for the company’s stocks. Improved liquidity comes with benefits such as lower costs for buying and selling, narrower price differences between buying and selling, and an overall more efficient market.

Recently, companies operating in Jordan have been urged to expand their social reporting due to newly enacted laws and regulations. The Environmental Protection Law of 2006 was enacted by the Jordanian Ministry of Environment, requiring businesses engaging in activities that could impact the environment to undertake environmental impact assessments [6]. This law’s primary goal is to preserve the environment, encompassing vital elements like water, air, soil, and their associated components. The Jordanian government oversees the Royal Department for Environmental Protection, responsible for monitoring these activities. This department conducts inspections on industrial facilities to ensure companies adhere to environmental standards and take action to maintain and manage natural and pastoral reserves.

Moreover, publicly traded firms were required to include CSR information in their annual reports due to the implementation of the Corporate Governance Code (CGC) in 2007, in conjunction with the directives of disclosure standards from the Jordan Securities Commission [6,7,8]. However, it is vital to recall that the CGC does not outline the precise information that must be demonstrated about CSR operations [6]. To incentivize companies to engage in CSR activities, Jordan has also introduced attractive tax incentives, particularly targeting charitable, humanitarian, and environmental projects. Companies involved in activities such as community development, education, healthcare, and environmental protection can benefit from tax exemptions or deductions. For instance, as stipulated in Article (10) of Income Tax Law No. 38 of 2018, a taxable person can deduct the subscriptions and donations made in Jordan for religious, charitable, humanitarian, scientific, or environmental causes. This approach underlines the government’s commitment to creating a favorable environment for businesses to integrate their activities with societal and environmental betterment.

Transparency and accountability are fundamental aspects of Jordan’s CSR framework. Jordan encourages companies to include their CSR initiatives in their publications. This not only raises awareness among stakeholders, but also empowers consumers and investors with valuable insights. Such transparency equips stakeholders with the necessary information required for making well-informed decisions, aligning with the trend of supporting socially and environmentally responsible companies. Despite these encouragements, it can be argued that Jordanian companies might provide limited CSR disclosure in annual reports. This can be attributed to minimal regulatory requirements, a shortage of qualified accountants, and the absence of third-party auditing [9]. The challenges of environmental disclosure, which requires expertise in law, engineering, and sociology, further contribute to this limitation [6]. In addition, the cultural and social environments of Jordanian companies may exert further influence on this limited disclosure.

This study adds to the existing literature on CSR disclosure by presenting additional empirical findings regarding the association between CSR disclosure levels and liquidity within the context of the Amman Stock Exchange (ASE). This contribution is particularly significant given the relatively limited disclosure practices observed in these markets [10]. Jordan deviates from other Arab and Middle East and North Africa (MENA) countries in its institutional setting, characterized by the presence of high ownership concentration levels in most firms listed on the ASE, predominantly controlled by families or the government [11]. These distinctive factors imply that the impact of CSR disclosure by Jordanian firms on market liquidity may deviate from the patterns observed in well-developed markets and others.

Nonetheless, this study’s objectives are twofold:

-

To assess the extent of CSR disclosure presented in the annual reports of non-financial Jordanian companies listed on the ASE;

-

To investigate the relationship between CSR disclosure and liquidity for the firms listed on the ASE. The underlying assumption of this relationship is rooted in signaling theory. It hypothesizes that increased CSR disclosure by firms will help mitigate the information asymmetry that exists between firms and investors [12]. In effect, increased CSR disclosure can potentially boost liquidity by enhancing transparency and reducing uncertainties associated with a firm’s operations and practices.

The findings of the current study showed that there is a significant variation in the extent of CSR disclosure among companies. The results also show that there is no association between liquidity and CSR disclosure. We conclude that this kind of information does not create value and reliable information for investors when trading a firm’s stocks. Investors may rely on other types of information, such as that provided in annual reports or from other sources (e.g., media reports). However, we find that liquidity is associated with firm size, stock price, firm risk, and trading volume.

2. Literature Review

The modern view of the firm and its connection with society has changed. Nowadays, companies are expected to play a role in contributing to society, because their actions can impact the environment and communities. This has led to a growing interest in evaluating how involved companies are in CSR activities [13]. Firms are being encouraged to share information about their CSR efforts, reflecting their commitment to social responsibility and their reputation [14]. Engaging in CSR activities offers companies several benefits, including a potential connection between their CSR actions and avoiding financial difficulties [15]. Furthermore, there seems to be a link between CSR activities and how well a company performs in the stock market [16]. Some reports have even suggested that CSR might yield a positive effect on a firm’s financial performance [17]. It has also been noticed that when companies focus on CSR and are backed by long-term institutional investments, this can positively influence how easily their stocks can be traded, indicating high liquidity [18]. Lopatta et al. [19] argued that firms that actively participate in CSR initiatives and show a commitment to them are more likely to boost investor confidence by reducing information asymmetry.

In recent years, corporations’ managers, governments, investors, and other groups have shown a growing recognition of CSR (e.g., [20,21]). According to Bloomberg’s data, a notable $490 billion was raised in 2020 through the issuance of green, social, and sustainability bonds by governments, corporations, and other organizations. Moreover, environmental, social, and governance (ESG)-focused investment funds saw a remarkable inflow of $347 billion, reaching an all-time high. The year also witnessed the launch of more than 700 new ESG-focused funds, showcasing a substantial flow in the world of sustainable and responsible investing. When making their decisions, investors usually consider integrating ESG/CSR principles and disclosures into their investment choices. Consequently, analysts are increasingly seeking enhanced ESG/CSR engagement details from companies and relaying such information to investors [22]. With the presence of mandatory CSR regulations, stakeholders find it more straightforward to identify companies with a CSR focus, thus enhancing their market prices and stock liquidity [23].

Prior studies in CSR disclosure literature support the notion that disclosing CSR information enhances transparency and diminishes information asymmetry, ultimately improving liquidity (e.g., [5,24,25,26]). This seems to hold for all types of CSR disclosures, irrespective of whether they are voluntary or mandatory [5,27]. The institutional theory of CSR provides another linkage between CSR, information asymmetry, and liquidity [28,29]. According to this theory, external institutional forces influence how firms engage in CSR, driven by isomorphism, including coercion, mimicry, and normative forces [30]. Mandatory CSR regulations, categorized as coercive isomorphism, directly impact firms’ CSR practices [31]. Without such regulations, significant information asymmetries may prevail, leading to less confidence within the investor community. Therefore, mandatory CSR regulations are expected to enhance the information environment, bolster investor confidence, and foster increased stock market participation and liquidity (ibid).

In this context, the introduction of CSR regulations adds a layered perspective. These regulations can alleviate the expenses associated with actively sourcing and overseeing CSR disclosure within companies, as regulatory bodies take charge of both supervision and enforcement. Consequently, the reduction in expenses linked to information acquisition and monitoring, coupled with the decline in information asymmetries and the improved identification of firms adhering to CSR standards, is anticipated to attract more investment capital towards firms obligated to comply with CSR mandates. This mechanism, in turn, is expected to contribute to a boost in the market liquidity of these companies subject to CSR regulations [21]. Egginton and McBrayer [32] found that transparent CSR disclosure is associated with narrower bid–ask spreads (SPREAD). The research also indicated that enhancements in equity market liquidity align with changes in firms’ CSR disclosure, showing that markets respond positively to transparent reporting of CSR initiatives, even if their actual impact is uncertain.

2.1. Signaling Theory

Consistent with signaling theory, Jang [33] identified a strong positive correlation between CSR disclosure and LIQUIDITY, focusing on 200 CSR-sensitive companies listed on the Australian Securities Exchange in 2014. Akrout and Ben Othman [34] demonstrated that the level of environmental disclosure in MENA companies is low. There is an inverse relationship between the level of environmental disclosure in the annual reports and the SPREAD, indicating a higher level of firm LIQUIDITY. Similar results were found in Colombia [35].

In India, Roy et al. [21] found that firms with CSR implementation may reduce information asymmetry and improve social and reputational capital compared to non-CSR companies. Nazir and Islam [36] identified a positive relationship between CSR activities and employee engagement in luxury hotels in New Delhi. Nazir et al. [37] revealed that employees’ participation in CSR in luxury hotels positively impacts their sense of purpose and experienced meaningfulness, ultimately enhancing employee engagement. In other emerging countries, Jihadi et al. [38] emphasized the crucial role that CSR plays in raising a given firm’s value and attracting more investors in Indonesia. Furthermore, their findings indicated that larger companies tend to prioritize extensive CSR initiatives as a strategy to enhance their company value. Subramaniam et al. [39] found that firms’ CSR disclosures showed greater reliability and made these firms less inclined to participate in unethical practices in Malaysia. This, in turn, creates CSR-induced social capital and trust, leading to LIQUIDITY and lessening managerial agency problems in firms.

Loukil and Yousfi [40] found that Tunisian investors lack confidence in the information provided in both annual reports and company websites. Voluntary disclosure in annual reports and on websites did not have a significant impact on stock liquidity for 41 publicly traded companies in 2007. Furthermore, it was observed that Tunisian investors’ lack of trust in the information presented in annual reports and on websites did not affect liquidity, in contrast to the influence of private information. Within the food and beverage industry in Jordan, Omar and Zallom [7] found that environmental, community, and product-related activities were associated with a decrease in market value, while human resources activities did not have any impact on market value. In another study, Abu Mallouh and Tahtamouni [41] concluded that there is no significant impact of CSR activities on liquidity, as evaluated using current and quick ratios to assess a company’s ability to fulfill short-term obligations in Jordan. Haddad et al. [42] conducted a study examining the association between the extent of voluntary disclosure and LIQUIDITY in ASE. They found that a higher level of voluntarily disclosed information in Jordanian annual reports led to a reduction in the SPREAD (higher liquidity). It is worth noting that Haddad et al.’s study concentrated on voluntary disclosure, and they did not examine the impact of CSR disclosure, which is a distinct category of disclosure, on liquidity in their research.

When CSR activities are considered value-relevant, they are believed to impact stakeholders’ perceptions of the company’s long-term sustainability, risk management, and overall corporate performance. This, in turn, can affect investment decisions, influence stock prices, and determine a company’s access to capital. Investors have compelling reasons to view CSR disclosure as value-relevant. Beyond its immediate impact on business fundamentals, effective CSR practices can enhance a company’s long-term financial performance by reducing risks, building a positive corporate image, and attracting a diverse pool of local as well as international investors [43]. CSR contributes to brand and reputation building, which, in turn, can result in increased customer loyalty and market share. Moreover, investors recognize the value of CSR in accessing capital, as companies aligning with sustainable and responsible practices often appeal to those seeking ethical investment opportunities. In the end, CSR adds value not only through its influence on financial returns, but also by promoting sustainable business practices, supporting innovation, and contributing positively to the social and environmental framework.

Prior research studies have yielded inconclusive findings when it comes to understanding the association between a company’s commitment to CSR and LIQUIDITY. This ambiguity arises due to a multitude of factors at play. For instance, Akrout and Ben Othman [34] and Abidin et al. [44] suggest that firms involved in CSR activities can lead to reduced asymmetries in information, decreased transaction costs, and ultimately, an improvement in LIQUIDITY. Conversely, other researchers argue that some firms may strategically employ CSR to gain competitive advantages (e.g., [45]), while others might use it to cover up unethical practices, potentially resulting in heightened information asymmetries and a reduction in LIQUIDITY [46,47,48].

2.2. Top of Form

In conclusion, both theoretical and most empirical research suggest that enhancing the level of CSR disclosure could potentially reduce information asymmetries within the stock market, consequently boosting LIQUIDITY. This study is unique in that it is the first of its kind to investigate the association between CSR disclosure and a firm’s LIQUIDITY, particularly assessed using SPREAD, in the specific context of the ASE. This approach offers a distinctive perspective on understanding how CSR initiatives might impact a firm’s stock liquidity in the ASE, with a focus on the SPREAD as a measure of trade ease without price disruption. One could also argue that the limited CSR disclosure by Jordanian companies might be influenced by cultural and social factors. In Jordan, like other Arab countries, cultural societal attributes such as significant power distance, limited future orientation, a strong degree of collectivism, and a heightened sense of uncertainty avoidance are prevalent [42,49]. Such factors might contribute to a tendency toward greater secrecy, conservatism, and reliance on regulations compared to their counterparts in more developed countries. This could, in turn, lead to lower levels of CSR disclosure [50]. Furthermore, the ASE’s liquidity level is comparatively lower than that of well-established capital markets. Hence, it could be reasoned that the influence of disclosure on LIQUIDITY might differ from what is observed in more advanced markets. As indicated earlier, most empirical findings have consistently shown a negative relationship between CSR disclosure and the SPREAD in the market (higher liquidity). These results align with earlier theoretical models. Therefore, the following hypothesis is formulated:

H1: 

There is a negative association between the SPREAD, which measures LIQUIDITY, and the extent of CSR disclosure identified in the annual reports of non-financial companies listed on the ASE.

3. The CSR Disclosure Index

In this study, the extent of CSR disclosure in the annual reports of Jordanian non-financial listed firms is measured using a self-constructed index. The process for identifying CSR data is outlined as follows [42]. Initially, an in-depth examination of disclosure research utilized in both developed and developing capital markets was conducted. Subsequently, a subset of 10 annual reports from non-financial Jordanian firms listed on the ASE for the year 2018 was selected for a preliminary evaluation of the checklist. This dual-pronged process aimed to refine the CSR index and eliminate elements not pertinent to CSR disclosure practices in Jordan. The items of information were subsequently subjected to validation through consultations with experts in disclosure practices and academia. The final checklist consists of 32 items of CSR information relevant to the case of Jordan. It is categorized into four groups: information concerning environmental activities (comprising 9 distinct items), initiatives concerning human resources (comprising 10 distinct items), engagements related to the community (comprising 7 distinct items), and undertakings tied to products and services (comprising 6 distinct items). Certain items on the checklist were mandatory, following Jordanian regulations and disclosure standards, while others were anticipated to be disclosed voluntarily, with the understanding that these applied to non-financial firms. A complete list of these elements can be found in Appendix A.

A pertinent consideration in constructing the index is the applicability or non-applicability of certain items, specifically determining their relevance to individual firms. To minimize subjectivity in addressing this matter, a comprehensive analysis of the entirety of the annual reports was conducted before deciding the relevance of specific elements [51]. Therefore, if an item was irrelevant to the firm’s activities, the researchers did not penalize it for not disclosing it.

4. Scoring of the Extent of CSR

In this study, the unweighted technique is employed using a dichotomous scale. When a firm includes a particular information item in its annual report, it is assigned a score of one. If the firm should have reported that information but did not, it is assigned a score of zero. If a particular item is not relevant to a specific firm, no score is assigned, to avoid penalizing the firm for not reporting irrelevant information. To determine the level of disclosure, the actual score given to a firm is divided by the maximum possible score for relevant pieces of information. This calculation serves as a representation of the extent of disclosure [8,51,52]. Consequently, a firm is awarded a score of 0% if it has not disclosed any information, and 100% if it has provided all relevant information.

5. The Sample of the Study

The sample of the study comprises both industrial and service sector firms listed on the ASE. There were a total of 192 firms listed on the ASE in 2018. However, five requirements were imposed to determine the homogeneity of the sample. First, we excluded financial and insurance firms, since they are heavily influenced by certain disclosure rules. Secondly, firms newly listed on the ASE were excluded. This exclusion was based on the consideration that newly listed firms may still be in the process of developing their CSR disclosure policy. Next, firms that discontinued their operations in 2018 were excluded. Furthermore, firms that submitted incomplete annual reports were not included. Finally, firms with shares that experienced infrequent trading were also excluded. With the information given above, the study’s final sample consisted of 72 firms, representing 37.50% of all the firms listed on the ASE at the end of 2018.

Table 1. The descriptive statistics of the sample study.

Statistics (n = 72)
	MC	ASSET	NI	TRADE	AGE	LEV	B_TO_M	SPREAD	CSR_O
Mean	60.43	130.53	3.67	5.99	36.39	0.397	1.668	0.063	48.12
Median	13.50	28.46	0.22	1.52	29	0.339	1.296	0.044	45.31
Std. Dev.	184.42	279.95	18.03	11.03	20.12	0.259	1.257	0.076	18.33
Minimum	1.10	0.36	−34.58	0.92	15	0.010	0.060	0.005	15.63
Maximum	1334.75	1440.22	124.87	74.35	118	1.040	6.760	0.592	86.87

MC: market capitalization of a firm at the end of 2018; ASSET: total assets at the end of 2018, NI: net income at the end of 2018, TRADE: trading volume in 2018; AGE: firm age; LEV: financial leverage measured by total liabilities over total assets; B_TO_M: book-to-market value at end of 2018, SPREAD: proportional spread, and CSR_O: overall CSR.

shows descriptive statistics for the sample of the study. MC denotes the market value of equity at the end of 2018, expressed in millions of Jordanian dinars (JOD). ASSET represents the total assets, and NI represents net income, all quantified in millions of JOD for the year 2018. TRADE represents the trading volume of the firm’s shares in million JOD, AGE denotes the age of the firm, LEV denotes the financial leverage, measured as the ratio of total liabilities to equity. B_TO_M captures the book-to-market price ratio. SPREAD represents the proportional spread observed throughout the year 2018, while CSR_O denotes the firm’s overall CSR. Computing ‘SPREAD’ involves taking the average of daily bid and ask prices and then dividing the difference between the ask and bid prices by the average of the bid and ask prices [40,53].

$$\mathrm{SPREAD}=\raisebox{1ex}{$\left(As{k}_t-Bi{d}_t\right)$}\!\left/ \!\raisebox{-1ex}{$((As{k}_t+Bi{d}_t)÷2)$}\right.$$

It is crucial to acknowledge that bid–ask spreads primarily serve as a proxy for market liquidity, not direct indicators of information asymmetry (e.g., [53]). As a result, bid–ask spreads only partially encompass such information asymmetries. Although more direct approaches are available to evaluate information asymmetries in capital markets, such as the probability of informed trading measures, correlated with trading volume, and the volume-synchronized probability of informed trading (VPIN) measure, offering insights into informed trading activity across a broader range of securities in capital markets (for example, [54,55]), these approaches are not employed in this paper due to data limitations [53].

As observed, the firms exhibit a wide range of sizes, with market values ranging from a minimum of JOD 1.10 million to a maximum of JOD 1334.75 million. The mean (median) MC is JOD 60.43 million (JOD 13.50 million). Total assets vary significantly, with a minimum value of JOD 0.36 million and a maximum value of 1440 million. NI also shows significant variations in size. The trade volume has a mean of 5.99 million, and the measure of LEV has a mean of 40%. However, it is worth noting that the mean SPREAD across all firms in the sample is 0.06, with values ranging from 0.005 to 0.592.

As seen in Table 1, there are noticeable variations in the extent to which firms disclose their CSR initiatives. Jordanian firms exhibit an average overall CSR disclosure level (CSR_O) with a mean of 48.12%. The range spans from the lowest score of 15.63% to the highest of 86.87%. Jordan Petroleum Refinery Co. (Amman, Jordan) demonstrates a notably high level of disclosure across various categories, encompassing environmental concerns, human resources, community engagement, and products and services.

The reliability and validity of the CSR index were subjected to thorough evaluation through a series of analyses. Initially, we employed Cronbach’s coefficient D [56] to capture the extent to which the interrelationships among the measurements were attributed to random error. A coefficient D nearing 1 indicates the heightened reliability of the generated index. The outcomes of the CSR index computation indicate a Cronbach’s coefficient D value of 85.6% for the entire disclosure index. Furthermore, we examined the correlation between CSR_O and its components. The positive and strong correlation coefficients among CSR_O and its components, ranging from 0.449 to 0.863, imply that firms proficient in disclosing specific types of information also tend to excel in disclosing other types of information [10]. Subsequently, we validated the CSR measures by exploring their relationship with other firm-specific characteristics previously associated with CSR (e.g., [12,42,51]). These characteristics encompass financial leverage, firm size, and firm age. Historically, these variables have shown significant and positive correlations with CSR measures in prior research. The findings presented in

Table 2. Correlations between CSR (and its components) and firm characteristics.

	CSR_O	CSR_E	CSR_H	CSR_C	CSR_P	LEV	MC	AGE
CSR_O	1	0.863 **	0.821 **	0.833 **	0.694 **	0.198 *	0.442 **	0.277 **
CSR_E		1	0.617 **	0.449 **	0.495 **	0.300 **	0.418 **	0.340 **
CSR_H			1	0.472 **	0.449 **	0.061	0.507 **	0.264 *
CSR_C				1	0.472 **	0.163	0.389 **	0.139
CSR_P					1	0.213 *	0.389 **	0.132
LEV						1	00.098	0.087
MC							1	0.213 *
AGE								1

CSR_O: overall CSR; CSR_E: environmental CSR; CSR_H: human resources CSR; CSR_C: community CSR; CSR_P: products and services CSR; LEV: financial leverage measured by total liabilities over total assets; MC: market capitalization of a firm at the end of 2018 (log form), and AGE: firm age. **. Correlation is significant at the 0.01 level (1-tailed). *. Correlation is significant at the 0.05 level (1-tailed).

align with the conclusions of prior studies.

6. Stock Market Liquidity and CSR Disclosure

6.1. Univariate Analysis

Prior empirical investigations have explored various factors expected to be associated with LIQUIDITY, including market risk (B_TO_M), trading volume (TRADE), share price (PRICE), and firm size (MC) [7,8,34,40,57,58]. Consistent with the findings of these earlier studies, we anticipate observing a positive relationship between LIQUIDITY and the firm’s MC and TRADE [7]. Larger firms tend to be more complex, offering a broader range of products and operating across diverse geographical locations, possibly including international markets. Consequently, management is obliged to provide a substantial volume of CSR information to serve the decision-making needs of diverse stakeholders. Higher TRADE often indicates increased interest in a specific stock, commonly leading to increased LIQUIDITY. A more liquid market typically possesses a greater presence of both buyers and sellers, resulting in swifter and more cost-effective transactions. Conversely, we predict a negative relationship between stock liquidity and PRICE. As PRICE rises, the number of shares that investors are motivated to buy or sell at any given point typically reduces. This dynamic creates a scenario with fewer participants in the market, leading to decreased liquidity [34]. Moreover, our model encompasses the inclusion of B_TO_M to assess a firm’s risk profile. Here, we anticipate an inverse relationship between firm risk and liquidity [40]. Notably, market risk can exert a significant influence on stock liquidity. When market risk rises, it can result in a decrease in the liquidity of the stock market, potentially making it more challenging for investors to buy or sell shares of stock.

Table 3. Correlation coefficients among CSR and explanatory variables.

	CSR_O	CSR_E	CSR_H	CSR_C	CSR_P	SPREAD	B_TO_M	TRADE	PRICE	MC
CSR_O	1	0.863 **	0.821 **	0.833 **	0.694 **	−0.053	−0.143	−0.025	0.255*	0.442 **
CSR_E		1	0.617 **	0.449 **	0.495 **	−0.084	−0.245	0.054	0.297 **	0.418 **
CSR_H			1	0.472 **	0.449 **	−0.032	−0.217	0.100	0.333 **	0.507 **
CSR_C				1	0.472 **	0.011	−0.079	0.022	0.077	0.389 **
CSR_P					1	0.011	−0.079	0.022	0.185 *	0.389 **
SPREAD						1	−0.015	0.571 **	−0.278 *	0.030
B_TO_M							1	0.066	−0.697 **	−0.378 **
TRADE								1	0.042	0.313 **
PRICE									1	0.662 **
MC										1

CSR_O: overall CSR; CSR_E: environmental CSR; CSR_H: human resources CSR; CSR_C: community CSR; CSR_P: products and services CSR; SPREAD: proportional bid–ask spread; B_TO_M: book-to-market value (Log form); TRADE: trading volume in 2018 (log form); PRICE: share price computed measured as the average of daily closing prices throughout the year 2018; and MC: market capitalization of a firm at the end of 2018 (log form). ** Significant at the 1% level (1-tailed). * Significant at the 5% level (1-tailed).

reveals that liquidity (SPREAD) is independent of CSR disclosure. However, we do observe a positive association with TRADE and a negative association with PRICE.

6.2. Regression Analysis

Here, we shift our attention towards examining the relationship between CSR and SPREAD. We do so while considering the impact of several other variables that have been associated with SPREAD. These variables include MC, TRADE, PRICE, and B_TO_M, which we have previously discussed. We also incorporate industry type (INDUS) as an additional control variable. This consideration arises from the recognition that different industries can exhibit varying risk-return profiles, as noted in previous research (e.g., [59]). To examine this relationship, we employ a multiple regression analysis, formulated according to the following equation:

SPREAD = α0 + b1CSR_O + b2MC + b3PRICE + b4B_TO_M + b5TRADE + b6INDUS + ε,

where SPREAD: proportional bid-ask spread; α: the intercept; CSR_O: overall CSR for a firm; MC: market capitalization at the end of 2018 (log form); PRICE: average daily closing price per share in 2018 (log form); B_TO_M: book-to-market value (log form); TRADE: trading volume (JOD) (Log form); INDUS: industry type (1 for industrial firm, 0 for service firm), b1, …, b6: regression coefficient; and ε: error term.

Table 4. Regression results.

	Coefficient	SE	T	Sig.
Intercept	−0.189	0.234	−805	0.212
CSR_O	0.010	0.01	−0.864	0.195
MC	0.063	0.035	1.779	0.040 *
PRICE	−0.228	0.055	−4.146	0.001 **
B_TO_M	−0.105	0.051	−2.059	0.021 *
TRADE	0.002	0.001	4.409	0.001 **
INDUS	0.045	0.033	1.393	0.087
Summary Statistics
n	72
F-Value	6.039
F-Sig.	0.001
$\mathrm{adjusted}{R}^2$	0.299

Note: CSR_O: overall CSR; MC: market capitalization of a firm at the end of 2018 (log form); PRICE: share price measured as the average of daily closing prices throughout the year 2018; B_TO_M: book-to-market value (log form); TRADE: trading volume at the end of 2018 (log form); and INDUS: industry type (1 for industrial firm, 0 for service firm). ** Significant at the 1% level (1-tailed). * Significant at the 5% level (1-tail).

reveals results indicating that there exists no significant association between CSR disclosure and SPREAD, suggesting that the liquidity of the firm’s stock market does not depend on CSR information. This result reveals that the CSR disclosure presented in annual reports in Jordan may not offer valuable or reliable insights to investors. Consequently, investors do not appear to rely on CSR disclosures for making trading decisions. This lack of trust might stem from concerns about the quality of such information, which could be incomplete, inaccurate, or potentially misleading. As a result, investors could be seeking information from alternative sources like news and media reports, industry research, analyst assessments, and even input from acquaintances and friends. This alignment with the results of the univariate analysis is also in line with previous research (e.g., [40]). However, it is worth noting that the adjusted $R^2$ of 0.299 indicates that around 30% of the variations in SPREAD can be accounted for by the variables included in the model. Finally, all variance inflation factors (VIF) (not reported) are below 10, indicating no sign of multicollinearity problems in the regression model.

Furthermore, we examined the relationship between SPREAD and the individual components of CSR, including CSR_E, CSR_H, CSR_C, and CSR_P. The regression results from this analysis (not reported) showed no substantial differences from the findings presented in Table 4.

7. Conclusions

This study evaluates CSR disclosure within a sample of 72 non-financial corporations listed on the ASE. The results show notable variances in the extent of CSR disclosure among the listed firms, with an average disclosure of approximately 48.12%, ranging from a low of 15.63% to a high of 86.87%. The study also investigates the association between CSR disclosure and LIQUIDITY, evaluated using the SPREAD. However, the results did not align with the initial hypothesis (H1). The conclusion drawn from the research is that the CSR disclosure found in the annual reports of Jordanian firms does not impact the SPREAD, and consequently, it does not affect LIQUIDITY. This implies that CSR disclosure might not play a substantial role in explaining the variations observed in the stock market’s liquidity. This, in turn, suggests that investors do not heavily depend on CSR disclosures when making decisions about trading involving Jordanian firms. This sense of doubt could originate from concerns about the accuracy and completeness of such disclosed information, which could be lacking, incorrect, or potentially misleading.

The lack of a significant association between LIQUIDITY and CSR disclosure in Jordan can be attributed to cultural, institutional settings, and market-specific factors. In Jordan’s cultural context, where personal relationships and traditional institutions hold substantial influence, investors may rely more on trusted personal networks than formal CSR disclosures for decision making. Additionally, due to the absence of regulatory incentives for comprehensive CSR reporting and market forces prioritizing other factors, investors in Jordan may not heavily consider CSR information in their assessments of stock market liquidity. These cultural and market-specific elements collectively contribute to the observed absence of a clear link between CSR disclosure and stock market liquidity in Jordan.

Moreover, the distinct institutional setting in Jordan, marked by high ownership concentration in firms listed on the ASE, predominantly controlled by families or the government, suggests that the impact of CSR disclosure may depart from patterns observed in other markets. The prevalence of family or government control introduces a layer of influence that may prioritize different considerations in investor decision making, potentially reducing the perceived relevance of CSR disclosures in shaping market liquidity forces in Jordan. Another contributing factor to the lack of a significant association is the prevalence of informed trading among investors in Jordan. The dominance of informed trading leads to widened information asymmetries, influencing the SPREAD to an extent where CSR disclosure becomes irrelevant. Moreover, given that the demand for CSR/ESG investing is largely driven by international institutional investors [60], the economic meaningfulness of informed trading may prompt these investors to abstain from holding Jordanian stocks, naturally reducing the demand for CSR in the market.

When comparing the results of the effect of voluntary disclosure on LIQUIDITY, as shown by Haddad et al. (2009) [42], to the results of CSR disclosure reported in this current study, investors likely tend to view voluntary disclosures as more closely tied to a firm’s immediate financial performance and its prospects. This perception likely contributes to their influence on LIQUIDITY. On the other hand, investors might perceive CSR disclosure as having less relevance to the firm’s short-term financial situation. Moreover, the effects of CSR might have a longer time horizon, while LIQUIDITY often reacts to short-term factors. This could lead investors, who are mainly interested in short-term profits, to downplay the significance of CSR considerations within the Jordanian context.

The fact that there is no straightforward relationship between CSR disclosure and LIQUIDITY has potential implications for regulators and firms alike. Regulators should encourage firms to provide more information on CSR, considering the societal and ethical responsibility of businesses that should remain significant, even if the association between CSR and LIQUIDITY is uncertain. Firms, on the other hand, should recognize the significance of CSR disclosure beyond the effects of short-term liquidity. CSR disclosure will create value for the firms in long-term prospects, as it will contribute to the business’s reputation and stakeholder trust, attracting more investors to invest in the business.

We also strongly recommend the adoption of investor education programs that highlight the long-term positive impacts of CSR on reputation and stakeholder relationships. This shift in investor perception is expected to generate a deeper appreciation for CSR efforts, encouraging a more informed and socially responsible investment decision-making process. We also support companies in implementing integrated reporting practices that smoothly incorporate both financial and non-financial information to offer stakeholders a comprehensive view of performance. Essential to this approach is the adoption of robust stakeholder engagement strategies, involving continuous communication to resolve concerns about the accuracy and completeness of CSR disclosures, thereby promoting transparency and trust. Policymakers are encouraged to explore mechanisms that provide incentives for long-term investing, aligning with the understanding that CSR impacts unfold over extended periods. Finally, we urge companies to emphasize performance indicators that go beyond financial ones, including aspects such as employee satisfaction, community impact, and environmental sustainability. This approach provides investors with a comprehensive understanding of a company’s resilience and overall health, contributing to a more informed investment decision-making process.

This article has several limitations. First, the study only included non-financial listed firms in Jordan. It is not clear whether the results can be generalized to firms in other industries. Second, the sample size was small, representing only 37.50% of the whole listed firms. Further research is needed with a larger sample size and over multiple periods. Third, the CSR disclosure index was measured based on the quantity of disclosed information, rather than its quality. It is possible that using a quality-based disclosure index would produce more robust results. Finally, this study examines the impact of CSR disclosure on stock market liquidity as measured by the bid–ask spread. The results of the study suggest that using various liquidity measures would also provide insight as to whether there is consistency in the significant relationship between the CSR disclosure level and different estimates of the stock market liquidity [54,55,61].