Corporate Social Responsibility, Internal Control and Enterprise Value—Based on the Chinese Stock Market

This study examines whether negative corporate social responsibility events (NCSRs) signal potential firm misreporting and pending financial reporting restatements. Without formal opinions on the effectiveness of internal controls over financial reporting in Taiwan, we hypothesize NCSRs can represent and/or signal a firm’s internal control weakness, which may in turn result in poor financial reporting. Note that the concern with controlling owners expropriating wealth through ineffective internal controls is given important weight by investors and regulators. We further examine whether the signaling function of NCSRs is more pronounced in contexts with a serious agency problem, such as is found in the high divergence of control and cash flow rights case (denoted as high excess control rights) in Taiwan. Empirical results indicate that, as conjectured, incidence of NCSRs is positively associated with the likelihood of reporting restatements. Further evidence reveals that this result is particularly pronounced in the high divergence of control and cash-flow rights subsample test. We demonstrate several diagnostic tests and show the results are robust in various specifications.

Download Full-text

The Effectiveness of Internal Control and Corporate Social Responsibility: Evidence from Chinese Capital Market

Sustainability ◽

10.3390/su10114006 ◽

2018 ◽

Vol 10 (11) ◽

pp. 4006 ◽

Cited By ~ 7

Author(s):

Xiao Li ◽

Chunmei Zheng ◽

Gang Liu ◽

Muhammad Sial

Keyword(s):

Corporate Governance ◽

Corporate Social Responsibility ◽

Social Responsibility ◽

Internal Control ◽

Economic Transition ◽

Transition Period ◽

Practical Importance ◽

Principal Agent ◽

Positive Role ◽

Corporate Social

From the perspective of the effectiveness of internal control, according to the Stakeholder Theory, Principal-Agent Theory and Reputation Theory, this paper analyzes comparatively the influences of internal control on the assumption of corporate social responsibility (SCPS) from the accrual basis, and the fulfillment of corporate social responsibility (CSRF) from the cash flow system respectively. Using a sample of 1767 firms listed in China between 2011 and 2016, we find that effective internal control has significantly promoted enterprises to assume social responsibilities. Meanwhile, effective internal control substantially improves the fulfillment of corporate social responsibility. This study overcomes the current situation that the two concepts of assumption and fulfillment of corporate social responsibility have not been distinguished in previous literature. We suggest that, in the economic transition period, the positive role of internal control in corporate governance should be promoted to protect the legitimate rights and interests of stakeholders; the adverse impact of the principal-agent relationship between shareholders and management on corporate governance should be avoided, building high-quality internal control; enterprises achieve steady and sustainable development process by the positive reputation value and robust external monitoring mechanism. This research is of practical importance to strengthen the subsequent construction of the internal control system and the long-term practice of corporate social responsibility.

Download Full-text

Who Values Corporate Social Responsibility in the Korean Stock Market?

Sustainability ◽

10.3390/su11215924 ◽

2019 ◽

Vol 11 (21) ◽

pp. 5924 ◽

Cited By ~ 4

Author(s):

Sangki Lee ◽

Insu Kim ◽

Chung-hun Hong

Keyword(s):

Corporate Social Responsibility ◽

Stock Market ◽

Social Responsibility ◽

Private Sector ◽

Abnormal Returns ◽

Pension Funds ◽

Public Pension ◽

Korean Stock Market ◽

The Government ◽

Corporate Social

In this study, we explore the stock market’s response to new information that a firm has been included in the Dow Jones Sustainability Index (DJSI) in Korea. In addition, we investigate which investor group contributes to the changes, if any significant increase in returns is found, after a firm’s incorporation into the DJSI. This study aims to identify which investors value corporate social responsibility (CSR) in the Korean stock market and examine whether the government-led campaigns for CSR have affected private sector investors, as well as those from the public sector. We find statistically significant abnormal returns for firms after their first listing in the index, implying that investors in Korean markets consider a firm’s inclusion in the DJSI as good news for the firm value. Using a unique dataset from the Korea Exchange (KRX) on investors, we classify investors into four groups: individual investors, public pension funds, other institutional investors, and foreign investors. Unlike prior studies that focus only on the existence of abnormal returns, we investigate the trading behavior of each investor group for such announcements. We find that it is mainly the buying pressure of public pension funds that generates abnormal returns. By contrast, we cannot find statistically significant results for the other investor groups. This result implies that the government-led campaign for CSR has only had limited effects in the Korean stock market, and that awareness of CSR in the private sector should be improved.

Download Full-text

Who can realize the “spot value” of corporate social responsibility?

Sustainability Accounting Management and Policy Journal ◽

10.1108/sampj-02-2019-0031 ◽

2020 ◽

Vol 11 (4) ◽

pp. 717-743

Author(s):

Shiyu Wang ◽

Yan Zhang ◽

Guanzhen Wang ◽

Zhibin Chen

Keyword(s):

Corporate Social Responsibility ◽

Social Responsibility ◽

Voluntary Disclosure ◽

Abnormal Returns ◽

Chinese Stock Market ◽

Chinese Market ◽

Content Type ◽

Retail Investors ◽

Csr Disclosure ◽

Corporate Social

Purpose This paper answers, in the Chinese stock market, who can realize the “spot value” of corporate social responsibility (CSR). Design/methodology/approach The authors use event-study to build the research framework. Using CSR report content analysis, the authors measure the specification level of CSR disclosure. Applying the Baidu index, the authors mine Chinese investors’ profiles data to investigate retail investor heterogeneity closely. Findings The authors find strong evidence that the measure captures a behavioral bias in CSR pricing: firms that choose to disclose CSR report experience positive abnormal return more among retail investors than institutional investors, more among young investors than older, but no difference between female and male investors. Practical implications For Chinese public firms, the authors give them evidence that they can realize positive abnormal returns by applying certain CSR disclosure strategies. For Chinese investors, especially retail investors and youths, the authors ask them to rethink whether their positive evaluation of CSR is a rational trade-off choice or whether they are fooled by the “hedging mask” and “attention-grabbing.” Social implications The findings can give some suggestions to regulators: encouraging voluntary disclosure and reducing mandatory disclosure can drive enterprises to engage in more CSR activities because the voluntarily CSR disclosure can realize both long-term value and “spot value.” Complementarily, a more rigorous CSR report auditing regulation can suppress the “greenwash” by increasing the “lying cost.” Originality/value Using behavioral finance theory, the authors connect the gap between neoclassical research on the “U-shaped” value realization of CSR and the increasing voluntary CSR disclosure in the Chinese market. The authors find that heuristic reason and emotionality orientation results in the Chinese “CSR-friendly” market.

Download Full-text