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Review of Managerial Science

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01.03.2016 | Original Paper

Corporate social responsibility disclosure and market valuation: evidence from Spanish listed firms

verfasst von: Carmelo Reverte

Erschienen in: Review of Managerial Science | Ausgabe 2/2016

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Abstract

Using a sample of listed Spanish companies pertaining to the IBEX35 index for the period 2007–2011, this paper examines whether those firms with higher CSR disclosure ratings are more valued by market participants. This study also complements the literature addressing the value relevance of CSR disclosure by further analyzing not only the direct effects of CSR reporting on stock prices but also its indirect effects through its interaction with main accounting variables (i.e., earnings and book value of equity). CSR reports can also affect stock price indirectly because the sustainability report may be perceived by investors to be a source of further and complementary information regarding the nature, composition and trends of the traditional value-relevant accounting variables. Finally, this study also analyzes whether CSR disclosure by firms operating in environmentally-sensitive industries is assessed differently by market participants than CSR disclosure by companies operating in other industries. By using a modified Ohlson (Contemp Account Res 1:661–687, 1995) model, it is found that CSR disclosure do have both a direct and indirect effect on stock prices by modifying the value-relevance of earnings and book value of equity. Moreover, CSR disclosure by companies operating in environmentally-sensitive industries is associated with higher market valuations than CSR disclosure by companies operating in nonsensitive industries. This may be due to the fact that CSR disclosures provide information that allow investors to make better assessments of the increased risk related to potential litigation and future environmental liabilities, thereby reducing information asymmetries and the risk of adverse selection.

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As the value relevance studies rely on the basic assumption of stock market efficiency, i.e., that stock prices pick up the effects of all relevant information, their inferences may be misleading if the stock market under analysis is not efficient. In this respect, the study by Kristoufek and Vosvrda (2014) compare the efficiency of 41 stock indices worldwide based on the correlation structure of the returns (long-term and short-term memory) and local herding behavior (fractal dimension). Their results show that Spain attains 12th place out of the 41 indices in the efficiency index.

Prior research has not found a consistently significant association between environmental performance and environmental disclosure. As pointed out by Al-Tuwaijri et al. (2004), if we assume that good environmental performance reduces the firm’s exposure to future environmental costs, then disclosure of this information should be perceived as good news by investors. Therefore, firms with good environmental performance should disclose more environmental information (in quantity and quality) than should firms with poorer environmental performance. On the other hand, if greater disclosure provides information that may be used in litigation against the disclosing firm (presumably by third parties with political or social agendas), good environmental performers might elect to minimize such disclosure (Li et al. 1997).

The underlying assumption of a value-relevance study is that the information used by investors when valuing a share will be incorporated into the firm’s share price (Barth et al. 2001). Value relevance could thus be measured in terms of the levels of equity prices (i.e., price-levels models) or in terms of changes in share prices (i.e., returns models). The objective when using a return approach is to evaluate what is reflected in share price changes during a particular period, whereas the objective when using a price levels approach is to evaluate what is reflected in stock price at a specific time (Barth 2006). Both types of value relevance studies inform us of the value relevance of information although the research question when using share returns instead of share prices may also be related to the information timeliness (Barth 2006).

It could be the case that the information on the future cash flows of the firm provided by CSR information may be negative if the firm needs considerable investments in order to retain the ‘license to operate’. In addition, previous literature (Kallapur and Kwan 2004) has indicated that managers may adjust their voluntary disclosures due to incentive schemes or as an ‘excuse’ for having missed the earnings benchmark. When the reliability of earnings declines, the market may place less reliance on earnings and look for other sources of information, such as book value.

CSR ratings usually employed in this literature (such as the KLD Strenghts and Concerns or the ASSET4 ratings) are intended to measure CSR performance (not CSR disclosure). The rating used in my study developed by the OCSR is more similar in spirit to others based on content analysis to evaluate CSR disclosure (e.g., Al-Tuwaijri et al. 2004).

Disclosure of CSR reports tends to lag the provision of annual financial statements. For the case of Spanish listed firms, annual accounts are usually disclosed within 2 months after fiscal year-end (i.e., around mid or end of February). However, CSR reports are usually disclosed within 3–6 months after fiscal year-end (depending on the company). Therefore, I have decided to take share prices corresponding to 6 months after the fiscal year-end in order to ensure that CSR reporting was available to investors.

Based on the SIC classification, we consider the following sectors: mining, oil and gas extraction (SIC1), manufacturing (SIC2 and 3), utilities (SIC4), commercial (SIC5) and services (SIC 7 and 8). Financial sector (SIC 6) is excluded from my sample.

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Titel: Corporate social responsibility disclosure and market valuation: evidence from Spanish listed firms
verfasst von: Carmelo Reverte
Publikationsdatum: 01.03.2016
Verlag: Springer Berlin Heidelberg
Erschienen in: Review of Managerial Science / Ausgabe 2/2016
Print ISSN: 1863-6683
Elektronische ISSN: 1863-6691
DOI: https://doi.org/10.1007/s11846-014-0151-7

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