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Review of Quantitative Finance and Accounting

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03.02.2023 | Original Research

Corporate social responsibility and annual report reading difficulty

verfasst von: Akhilesh Bajaj, Lori N. K. Leonard, Li Sun, Zhenze Xing

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 4/2023

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Abstract

We use more than 21,000 firm-year observations for 2534 U.S. companies between 1993 and 2018 to investigate the relationship between corporate social responsibility performance and the reading difficulty of annual reports. We find a significant negative relationship, suggesting that the annual reports of socially responsible firms are more readable (i.e., easier to read and understand). Overall, our results suggest that socially responsible firms are more ethical and transparent, which is consistent with the stakeholder view.

Vorheriger Artikel Board overconfidence and M&A performance: evidence from the UK

Nächster Artikel Common institutional ownership and mergers and acquisitions outcomes

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Readability is related to transparency; however, they are not the same concept. Based on prior research (e.g., Kim, Park, and Wier 2012), transparency refers to the tendency of a firm to disclose truthful facts to stakeholders. Hence, such firms are less likely to engage in opportunistic behavior. Readability refers to the extent how easy or difficult for readers to understand corporate disclosures. Therefore, transparency is more related to corporate behavior, while readability is more related to the complexity of corporate disclosures. In general, annual reports of transparent firms are more readable.

Morgan Stanley Capital International (MSCI) Environmental, Social, and Governance (ESG) database.

https://kelley.iu.edu/bpm/activities/bogindex.html

The final year of CSR data from MSCI ESG in Compustat is 2018 as of March 23, 2022.

Perhaps closet to our study are the findings of Bacha and Ajina (2020), who find that CSR is positively related to annual report readability among French firms. Our study complements Bacha and Ajina (2020) but differs along several important dimensions. First, our results rely on U.S. data rather than French dada. Second, Bacha and Ajina (2020) use the Fog Index to measure readability, while we use the Bog Index, which is suggested by many recent studies such as Bonsall et al. (2017) as a more comprehensive readability measure than the Fog Index. Third, our sample period covers the period of 1993–2018, while that of Bacha and Ajina (2020) covers only 4 years (i.e., 2013–2016). Hence, our findings may be more robust, relative to Bacha and Ajina (2020).

We thank Professor Feng Li for providing the Fog Index data and Professor McDonald for providing file size data.

We do not include bond ratings and corporate governance in the baseline model because adding these two variables greatly reduces our sample size.

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Titel: Corporate social responsibility and annual report reading difficulty
verfasst von: Akhilesh Bajaj
Lori N. K. Leonard
Li Sun
Zhenze Xing
Publikationsdatum: 03.02.2023
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 4/2023
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-023-01132-9

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