Corporate social responsibility and stock price crash risk

This study investigates whether corporate social responsibility (CSR) mitigates or contributes to stock price crash risk. Crash risk, defined as the conditional skewness of return distribution, captures asymmetry in risk and is important for investment decisions and risk management. If socially responsible firms commit to a high standard of transparency and engage in less bad news hoarding, they would have lower crash risk. However, if managers engage in CSR to cover up bad news and divert shareholder scrutiny, CSR would be associated with higher crash risk. Our findings support the mitigating effect of CSR on crash risk. We find that firms\u27 CSR performance is negatively associated with future crash risk after controlling for other predictors of crash risk. The result holds after we account for potential endogeneity. Moreover, the mitigating effect of CSR on crash risk is more pronounced when firms have less effective corporate governance or a lower level of institutional ownership. The results are consistent with the notion that firms that actively engage in CSR also refrain from bad news hoarding behavior and thus reducing crash risk. This role of CSR is particularly important when governance mechanisms, such as monitoring by boards or institutional investors, are weak. JEL classification: G14; G30; M14; M4

Critical Evaluation of Environmental, Social and Governance Disclosures of Malaysian Property and Construction Companies

There is an increasing demand from stakeholders for higher transparency on environmental, social and governance (ESG) disclosures. Yet not much is known about the state of sustainability reporting in Malaysia especially in the property and construction industry. This paper aims to fill this gap accordingly. Content analysis of corporate websites, sustainability and annual reports was adopted as the main methodology in this study. Findings show that corporate governance indicators are most reported by Malaysian construction companies compared to other environmental or social indicators. It was also found that details on actual health and safety performance of these companies and the initiatives implemented were largely absent from their reporting. Given the increasing number of rating tools in the capital markets which serve to rank and file companies based on their sustainability disclosures and performance such as the Dow Jones Sustainability Index (DJSI) and FTSE4Good Index, it is questionable as to how reliable this can be done for the Malaysian property and construction market. The paper will be useful to construction management practitioners and ESG analysts with a focus on Asian markets

Does Institutional Context Affect CSR Disclosure? A Study on Eurostoxx 50

We propose to investigate the relationship between corporate social responsibility disclosure and institutional/environmental factors among a sample of European listed companies. We find that, by using several traditional explicative variables, institutional factors affect the level of CSR disclosure, in a context where the EU Commission has been paying growing attention to social and environmental accountability of listed companies (see the EU Dir. 95/2014). Our findings are further supported by multivariate regression, where ESG score (measure of CSR disclosure) is regressed on nine variables which represent the expression of institutional factors. By looking at the institutional determinants of CSR disclosure, we are seeking to pose a challenge for future research agenda, in order to understand whether CSR does actually reflect an effective commitment of firms to accounting practices and rules, as a form of social behavior, or whether it is just a tool to manage stakeholders’ perception and to comply with regulation

Value Relevance of Environmental, Social, and Governance Disclosure

This paper investigates the impact of Environmental, Social, and Governance (ESG) disclosure by companies around the world on market value. Using a large sample of non financial companies listed in 38 countries during the period 2008–2012, we test for value relevance by employing the modified version of the Ohlson (1995) model developed by Collins, Maydew, and Weiss (1997). We find support for the value relevance of disclosure of ESG both in aggregate form and for its individual components. These findings support the expectation of disclosure theory that disclosure of relevant information (such as ESG) has a positive impact on value. The results are robust to several alternative specifications. Consistent with the finance literature on the impact of legal origin (La Porta, Lopez de Silanes, & Shleifer, 2006; La Porta, Lopez de Silanes, Shleifer, & Vishny, 1998, 2000, 2002), the results for ESG disclosure are stronger in common-law countries. Our results provide new evidence for researchers, investors, and policy makers of the value relevance of ESG disclosure in a broad international setting. The evidence shows that globally investors benefit from the disclosure of both aggregate ESG and the individual factors and this supports regulators in pushing companies to provide additional ESG information

A conceptual framework for changes in Fund Management and Accountability relative to ESG issues

Major developments in socially responsible investment (SRI) and in environmental, social and governance (ESG) issues for fund managers (FMs) have occurred in the past decade. Much positive change has occurred but problems of disclosure, transparency and accountability remain. This article argues that trustees, FM investors and investee companies all require shared knowledge to overcome, in part, these problems. This involves clear concepts of accountability, and knowledge of fund management and of the associated ‘chain of accountability’ to enhance visibility and transparency. Dealing with the problems also requires development of an analytic framework based on relevant literature and theory. These empirical and analytic constructs combine to form a novel conceptual framework that is used to identify a clear set of areas to change FM investment decision making in a coherent way relative to ESG issues. The constructs and the change strategy are also used together to analyse how one can create favourable conditions for enhanced accountability. Ethical problems and climate change issues will be used as the main examples of ESG issues. The article has policy implications for the UK ‘Stewardship Code’ (2010), the legal responsibilities of key players and for the ‘Carbon Disclosure Project’

Essays on Corporate Transparency

La transparència corporativa és freqüentment proposada com una solució als problemes socials. La raó subjacent darrere d'aquesta visió és que en forçar a les corporacions a divulgar el seu impacte en la societat, els stakeholders aprendran sobre les activitats corporatives, canviaran la seva presa de decisions i imposaran un cost a les corporacions el comportament de les quals es considera objetable. Amb aquest fi, en els últims anys, els responsables de polítiques arreu del món han manat cada vegada més a les corporacions a ser més transparents en dimensions específiques amb la suposició que els stakeholders aprendran millor sobre les activitats corporatives. Aquesta tesi investiga la relació entre la transparència corporativa i la presa de decisions dels stakeholders. Més específicament, el primer estudi té com a objectiu explorar si un augment en la transparència de la Responsabilitat Social Corporativa (RSC) canviarà la presa de decisions per un grup d'interessats que teòricament té un interès primordial en aprendre i monitorar la informació de la RSC. Per investigar aquesta relació, el primer estudi explota dades granulars del regulador de seguretat en el treball. L'evidència empírica mostra que quan la informació sobre seguretat en el treball està disponible a través de valoracions, els reguladors ajusten la seva activitat d'aplicació sobre les empreses on l'efecte dissuasiu és major. El segon capítol mostra com un augment en la transparència i el processament més fàcil de la informació financera permet als participants del mercat dedicar més temps a la informació no financera. L'estudi aprofita una regulació que va facilitar el processament de la informació financera per als participants del mercat. Mostra que després de la regulació, els participants del mercat tenen més recursos per monitorar altres activitats de l'empresa, la qual cosa al seu torn, anima a les empreses a millorar el seu comportament cap a aquestes activitats. Mentre que els primers dos estudis investiguen la relació entre la transparència corporativa i els stakeholders externs, l'últim estudi mostra com la transparència corporativa afecta el comportament dels agents interns. Més específicament, adoptant un model estructural dinàmic i combinant-lo amb dades empíriques, l'estudi mostra com els gerents utilitzen les inversions com un senyal per influir en la valoració del mercat de valors, particularment quan el nivell de transparència de l'empresa és baix. En general, la tesi demostra com la transparència corporativa influeix en les accions dels stakeholders.La transparencia corporativa es frecuentemente propuesta como una solución a los problemas sociales. La razón subyacente detrás de esta visión es que al forzar a las corporaciones a divulgar su impacto en la sociedad, stakeholders aprenderán sobre las actividades corporativas, cambiarán su toma de decisiones e impondrán un costo a las corporaciones cuyo comportamiento se considera objetable. Con este fin, en los últimos años, los responsables de políticas en todo el mundo han mandado cada vez más a las corporaciones a ser más transparentes en dimensiones específicas con la suposición de que stakeholders aprenderán mejor sobre las actividades corporativas. Esta tesis investiga la relación entre la transparencia corporativa y la toma de decisiones de stakeholders. Más específicamente, el primer estudio tiene como objetivo explorar si un aumento en la transparencia de la Responsabilidad Social Corporativa (RSC) cambiará la toma de decisiones por un grupo de interesados que teóricamente tiene un interés primordial en aprender y monitorear la información de la RSC. Para investigar esta relación, el primer estudio explota datos granulares del regulador de seguridad en el trabajo. La evidencia empírica muestra que cuando la información sobre seguridad en el trabajo está disponible a través de ratings, los reguladores ajustan su actividad de aplicación sobre las empresas donde el efecto disuasorio es mayor. El segundo capítulo muestra cómo un aumento en la transparencia y el procesamiento más fácil de la información financiera permite a los participantes del mercado dedicar más tiempo a la información no financiera. El estudio aprovecha una regulación que facilitó el procesamiento de la información financiera para los participantes del mercado. Muestra que después de la regulación, los participantes del mercado tienen más recursos para monitorear otras actividades de la empresa, lo que a su vez, alienta a las empresas a mejorar su comportamiento hacia estas actividades. Mientras que los primeros dos estudios investigan la relación entre la transparencia corporativa y stakeholders externos, el último estudio muestra cómo la transparencia corporativa afecta el comportamiento de los agentes internos. Más específicamente, adoptando un modelo estructural dinámico y combinándolo con datos empíricos, el estudio muestra cómo los gerentes usan las inversiones como una señal para influir en la valoración del mercado de valores, particularmente cuando el nivel de transparencia de la empresa es bajo. En general, la tesis demuestra cómo la transparencia corporativa influye en las acciones de stakeholders.Corporate transparency is frequently proposed as a solution to societal problems. The underlying rationale behind this view is that by forcing corporations to disclose their impact on society, stakeholders will learn about corporate activities, change their decision-making, and impose a cost on corporations whose behavior is considered objectionable. To this end, in recent years, policymakers around the world have increasingly mandated corporations to be more transparent on specific dimensions with the assumption that stakeholders will better learn about corporate activities. This thesis investigates the relationship between corporate transparency and stakeholders' decision-making. More specifically, the first study aims to explore whether an increase in Corporate Social Responsibility (CSR) transparency will change decision-making by a stakeholder group that theoretically has a first-order interest in learning and monitoring CSR information. To investigate this relationship, the first study exploits granular data from the workplace safety regulator. Empirical evidence shows that when workplace safety information is available through ratings, regulators adjust their enforcement activity on firms where the disciplining effect is higher. The second chapter shows how an increase in transparency and easier processing of financial information allows market participants to devote more time to non-financial information. The study leverages a regulation that made the processing of financial information easier for market participants. It shows that after the regulation, market participants have more resources to monitor other firm activities, which in turn, encourages firms to improve their behavior towards these activities. While the first two studies investigate the relationship between corporate transparency and external stakeholders, the last study shows how corporate transparency affects internal agent behavior. More specifically, by adopting a dynamic structural model and combining it with empirical data, the study shows how managers use investments as a signal to influence stock market valuation, particularly when the firm's level of transparency is low. Overall, the thesis demonstrates how corporate transparency influences stakeholder actions

Corporate non‐financial disclosure, firm value, risk, and agency costs: evidence from Italian listed companies

This study examines the relationship between corporate non-financial disclosure ratings, the Italian Legislative Decrees 231/2001 and 254/2016, and three outcomes of Italian listed firms: performance, risk and agency cost. Based on stakeholder–agency theory, this study conceptualizes the role of firms’ non-financial disclosures in reducing asymmetric information and agency costs between managers and broad stakeholders. Utilizing the Standard Ethics Rating (SER) as a measure of firms’ non-financial disclosure rating, this study finds that SER ratings are positively related to firm value and are negatively related to firms’ risk and agency costs. This study also provides evidence that the adoption of Italian Legislative Decrees 231/2001 and 254/2016, along with external verifications from the SER of firms’ non-financial disclosure, has a positive impact on firm outcomes. Corporate managers and investors should recognize the value added from regulations that foster non-financial disclosures and ratings issued by an independent rating agency (e.g., Standard Ethics) as they both enhance firm performance and reduce risk and agency costs

The Effects of Mandatory ESG Disclosure Around the World

We compile a novel data set on mandatory environmental, social, and governance (ESG) disclosure around the world to analyze the stock liquidity effects of such disclosure mandates. We document a positive effect of ESG disclosure mandates on firm-level stock liquidity. The effects are strongest if the disclosure requirements are implemented by government institutions, not on a comply-or-explain basis, and coupled with strong enforcement by informal institutions. Firms with weaker information environments benefit more from ESG disclosure mandates. Our results support the view that ESG disclosure regulation improves the information environment and has beneficial capital market effects

The Evolution and Future Trajectory of ESG Information Disclosure in China: Building a Harmonized Disclosure System in the Context of Global Integration

This paper examines the evolution and future trajectory of Environmental, Social, and Governance (ESG) information disclosure in China within the context of global integration. As sustainability reporting gains prominence worldwide, China has made significant strides in developing a comprehensive ESG disclosure framework that balances international standards with domestic priorities. Through analysis of recent policy developments, academic research, and industry practices, this study tracks China's journey from initial voluntary environmental reporting to its current structured approach with mandatory disclosure requirements for many listed companies. The research identifies key challenges in China's ESG disclosure system, including data quality concerns, implementation capacity constraints, and the need to harmonize local standards with global frameworks. The paper also examines China's efforts toward global integration, particularly its relationship with International Sustainability Standards Board (ISSB) standards and initiatives under the Belt and Road framework. Looking ahead, China's ESG disclosure system is poised for full implementation by 2030, with increasing focus on digital transformation, expanded mandatory requirements, and enhanced global alignment. The findings provide valuable insights for policymakers, companies, investors, and researchers interested in China's sustainable development and its growing influence on global ESG standards

Essays on ESG disclosure, performance and assurance

In this dissertation, economic implications of ESG disclosure, performance and assurance are examined in three essays. It is evident in the recent developments that the need for a sustainable and responsible investments is beyond discussion and becoming inevitable. An integral element required to make such investments is ESG information. The role and importance of ESG, especially to investment decisions, is attracting regulators’ interest in approaching the provision of ESG information through mandatory disclosure. Moreover, credit rating agencies are showing interest into the implications of ESG to credit risks. The purpose of this thesis is, therefore, to examine the reception of the mandatory EU ESG disclosure, and to examine the potential monitoring and signaling roles of third-party ESG assurance. The overall results of the thesis are three-fold. First, in examining the perception of investors towards EU directive on mandatory ESG disclosure, essay one shows a negative stock market reaction which indicates investors’ assessment of the directive as costly. The costs may include administrative and reporting costs of complying the mandate and potential proprietary and political costs following the reporting. Second, using sample firms from EU, essay two shows a higher ESG performance for firms that assure their ESG reports than firms that do not assure ESG reports. The results confirm the signaling role of an independent third-party assurance to differentiate between ESG performances. Firms with higher ESG performance has the incentive to use third-party ESG assurance to differentiate themselves from counterparts with an inferior ESG performance, otherwise both types of firms could be pooled together. Third, in line with monitoring theory of assurance and risk mitigation role of ESG to credit risks, essay three shows a mediated role of third-party ESG assurance on credit ratings. The results shows that the third-party ESG assurance indirectly leads to a reduced credit risk transferred through an enhanced ESG performance