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Does corporate social responsibility disclosure improve firm investment efficiency?

Author

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  • Ma Zhong
  • Lucia Gao

Abstract

Purpose - The purpose of this paper is to investigate the impact of corporate social responsibility (CSR) disclosure on firm-level investment efficiency. Design/methodology/approach - An econometric model is used to estimate the impact of CSR reporting on investment efficiency on a sample of listed Chinese firms during the period from 2010 to 2013. Financial reporting quality is included in the model as a control variable. Investment efficiency is estimated based on existing models. Two scenarios are identified: under-investment and over-investment. Findings - The results provide evidence of a higher level of investment efficiency for CSR reporting firms than for non-reporting firms. This relationship is, however, more pronounced in the over-investment scenario than in the under-investment scenario. In addition, the association between CSR disclosure and investment efficiency is stronger for firms with lower financial reporting quality (FRQ). These findings support the hypothesis that CSR disclosure provides effective incremental information that contributes to reduce information asymmetry and promote investment efficiency. Originality/value - This is the first paper that directly tests the association between CSR disclosure and firm-level investment efficiency. The results suggest that firms and investors should consider the effect of CSR disclosure on information asymmetry and its impact on the availability and cost of capital. This work also contributes to the understanding of the economic impacts of CSR disclosure and provides arguments for regulatory entities to enforce CSR disclosure.

Suggested Citation

  • Ma Zhong & Lucia Gao, 2017. "Does corporate social responsibility disclosure improve firm investment efficiency?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 16(3), pages 348-365, August.
    • Handle: RePEc:eme:rafpps:raf-06-2016-0095
    DOI: 10.1108/RAF-06-2016-0095
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    Citations

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    Cited by:

    1. Mengdie Hai & Ziwei Fang & Zhaohua Li, 2022. "Does Business Group’s Conscious of Social Responsibility Enhance its Investment Efficiency? Evidence from ESG Disclosure of China’s Listed Companies," Sustainability, MDPI, vol. 14(8), pages 1-18, April.
    2. Imen Derouiche & Riadh Manita & Anke Muessig, 2021. "Risk disclosure and firm operational efficiency," Annals of Operations Research, Springer, vol. 297(1), pages 115-145, February.
    3. Rehana Anwar & Jaleel A. Malik, 2020. "When Does Corporate Social Responsibility Disclosure Affect Investment Efficiency? A New Answer to an Old Question," SAGE Open, , vol. 10(2), pages 21582440209, June.
    4. Bilyay-Erdogan, Seda & Danisman, Gamze Ozturk & Demir, Ender, 2024. "ESG performance and investment efficiency: The impact of information asymmetry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    5. Sumiyana Sumiyana & Ainun Na’im & Firdaus Kurniawan & Albertus H. L. Nugroho, 2023. "Earnings management and financial distress or soundness determining CEOs’ future over- and under-investment decisions," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-10, December.
    6. Nejla Ould Daoud Ellili, 2022. "Impact of environmental, social and governance disclosure on dividend policy: What is the role of corporate governance? Evidence from an emerging market," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1396-1413, September.
    7. Noha Elberry & Khaled Hussainey, 2021. "Governance Vis-à-Vis Investment Efficiency: Substitutes or Complementary in Their Effects on Disclosure Practice," JRFM, MDPI, vol. 14(1), pages 1-16, January.
    8. Tadesse Getacher Engida & Christopher F. Parmeter & Xudong Rao & Alfons G.J.M. Oude Lansink, 2022. "Investment Inefficiency and Corporate Social Responsibility," Journal of Productivity Analysis, Springer, vol. 58(1), pages 95-108, August.
    9. William Mbanyele, 2022. "Firms' innovation strategy under the shadow of corporate social responsibility disclosure: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 339-355, March.
    10. Li Liu & Gary Gang Tian, 2021. "Mandatory CSR disclosure, monitoring and investment efficiency: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 595-644, March.
    11. Shi, Jinyan & Yang, Jianheng & Li, Yanxi, 2020. "Does supply network location affect corporate investment efficiency?," Research in International Business and Finance, Elsevier, vol. 51(C).
    12. Xiaopeng Wang & Xueyao Shen & Yongliang Yang, 2020. "Does Environmental Information Disclosure Make Firms’ Investments More Efficient? Evidence from Measure 2007 of Chinese A-Listed Companies," Sustainability, MDPI, vol. 12(5), pages 1-16, March.

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