Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

This is a public Custom Hive  public

research summary

    The Role of Corporate Social Responsibility (CSR)...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 14.0 Corporate Matters, 15.0 International Matters, 15.05 Sustainability Services 
    117 Views
    Title:
    The Role of Corporate Social Responsibility (CSR) Assurance in Investors' Judgments When Managerial Pay is Explicitly Tied to CSR Performance.
    Practical Implications:

    This study provides support for the expansion of CSR assurance services, the disclosures of benchmarked CSR investment levels, and the potential investor assessments of such information when integrated with governance information. If investors concerned about “greenwashing” in the presence of pay-for-CSR-performance can reasonably rely upon these CSR disclosure factors, they may become less skeptical about using this type of nonfinancial information in their investment decisions. This in turn may lead firms to attract and retain those managers who are willing to substantively invest in CSR activities, signal the firm’s CSR commitment level, and ultimately add to the firm’s long-term value.

    Citation:

    Brown-Liburd, H., & Zamora, V. L. 2015. The Role of Corporate Social Responsibility (CSR) Assurance in Investors' Judgments When Managerial Pay is Explicitly Tied to CSR Performance. Auditing: A Journal of Practice & Theory 34 (1): 75-96.

    Keywords:
    assurance services, corporate social responsibility, investor judgments, pay-for-performance
    Purpose of the Study:

    With corporate social responsibility (CSR) reports being primarily positive in nature comes investors’ increasing demand for both independent assurance and integrated reporting of CSR information. One explanation of why the demand for assurance exceeds the supply is that CSR assurance and supporting information become especially value relevant to investors as more firms explicitly link managerial pay to sustainability, and such links provide managers greater situational incentives to strategically disclose strong CSR performance. The authors thus examine the role of CSR assurance as a disclosure credibility signal for positive CSR performance when supporting information, such as CSR investment level, is integrated with governance information, such as explicit ties between CSR performance and managerial pay. While a firm may report a high level of CSR investment to indicate an authentic commitment to CSR, investors may become skeptical of the reported CSR investment information when CSR performance is explicitly tied to managerial pay. Since managers have greater situational incentives to overinvest in CSR and thereby report strong CSR performance, investors will seek CSR assurance as a disclosure credibility signal.

    Design/Method/ Approach:

    Qualtrics recruited a sample of 268 individuals, all with an investment knowledge. The mean age is 43 years old, 50 percent are female, and 22 percent have a graduate degree. In addition, there is a range of investing task expertise as an investor through mutual or pension funds (63 percent), an investor in common stock or debt securities (63 percent), or as a professional investor (27 percent). The authors employ an online mixed factorial experiment.

    Findings:

    Investors’ stock price assessments are greater in the presence of both pay-for-CSR-performance and CSR investment level above-industry average only when combined with the presence of CSR assurance. The authors also find that this interactive effect is marginally higher for investors holding conventional securities, which is one proxy used for “investing task expertise.” Investors value the combination of CSR disclosure-based factors rather than each factor individually. CSR assurance acts as a disclosure credibility signal for positive CSR performance when supporting information, such as CSR investment level, is integrated with governance information, such as CSR performance explicitly tied to managerial pay. In all, the results suggest that, in the CSR context, the presence of greater situational incentives renders supporting information value relevant only when combined with independent assurance.

    Category:
    Corporate Matters, International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience