The Mediating Effect of Information Asymmetry and Agency Costs on the Relationship Between CSR and Investment Efficiency

Document Type: Research Paper


Accounting Dept, Facility Member of Golestan Institute of Higher Education, Gorgan, Iran.



The purpose of the present study is to investigate the relationship between corporate social responsibility and investment efficiency with particular emphasis on the mediating role of agency cost and information asymmetry in a sample of 121 firms listed on the Tehran Stock Exchange during the time period from 2012 to 2017. The research hypotheses are tested using multivariate regression analysis based on panel data and Eviews software. The results indicate that corporate social responsibility is negatively correlated with investment inefficiency. In other words, corporate social responsibility leads to reduced investment inefficiency. Also, information asymmetry plays a mediating role in the relationship between corporate social responsibility disclosure and underinvestment, whereas the variable of agency cost mediates the association between corporate social responsibility disclosure and overinvestment.


[1] Aflatooni, A., mansouri, K., Opaque Information, Deviation from Target Leverage and Speed of Adjustment, Advances in Mathematical Finance and Applications, 2019, 4(2), P. 15-29. Doi:10.22034/amfa.2019.585872.1191

[2] Aghaei, M., Hasanzadeh, B., Accounting Comparability and Its Effect on Investment Efficiency, Journal of  Accounting knowledge, 2018, 9(2), P. 7-34.  Doi: 0.22103/jak.2018.11156.2531

[3] Andrén, N., and Jankensgård, H., Wall of cash: The investment-cash flow sensitivity when capital becomes abundant, Journal of Banking & Finance, 2015, 50, p. 204-213.  Doi: 10.1016/j.jbankfin.2014.10.010

[4] Aribi, A., and Gao, S., Corporate social responsibility disclosure, Journal of Financial Reporting and Accounting, 2010, 8(2),  p. 72-91.  Doi: 10.1108/19852511011088352

[5] Attig, N., Cleary, S. W., El Ghoul, S., and Guedhami, O., Corporate Legitimacy and Investment–Cash Flow Sensitivity, Journal of Business Ethics, 2014, 121(2), p. 297-314.  Doi: 10.1007/s10551-013-1693-3

[6] Baron, R. M., and Kenny, D. A., The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations, Journal of personality and social psychology, 1986, 51(6), p. 1173.  Doi: 10.1037/0022-3514.51.6.1173

[7] Behbahani nia, P., and Masoomi, J., The role of auditing quality in information asymmetry reduction. Journal of Financial Accounting Knowledge, 2017, 3(4),  p. 93-106.

[8] Benlemlih, M., and Bitar, M., Corporate Social Responsibility and Investment Efficiency, Journal of Business Ethics, 2016, p. 1-25.  Doi: 10.1007/s10551-016-3020-2

[9] Biddle, G. C., Hilary, G.,  and Verdi, R. S., How does financial reporting quality relate to investment efficiency?, Journal ofAccounting and Economics, 2009, 48(2–3), p. 112-131.  Doi: 10.1016/j.jacceco.2009.09.001 

[10] Calton, J. M., and Payne, S. L., Coping with paradox multistakeholder learning dialogue as a pluralist sensemaking process for addressing messy problems, Business & Society, 2003, 42(1), p. 7-42.  Doi: 10.1177/0007650302250505

[11] Campello, M., Graham, J.R., and Harvey, C.R., The real effects of financial constraints: evidence from a financial crisis, Journal of Financial Economics, 2010,  97(3), p. 470-487.   Doi:10.1016/j.jfineco.2010.02.009

[12] Chan, R., Song, B., and Fan, L., Dividend policy and Investment Efficiency the Changes of the Mandatory, Hong Kong Baptist University, 2016,  Doi: 10.2139/ssrn.2715220

[13] Chen, R., El Ghoul, S., Guedhami, O. and Wang, H., Do state and foreign ownership affect investment efficiency?, Evidence from privatizations, Journal of Corporate Finance, 2014,  Doi:10.1016/j.jcorpfin.2014.09.001

[14] Chen, F., Hope, O., Li, Q., and Wang, X., Financial reporting quality and investment efficiency of private firms in emergingmarkets, The Accounting Review, 2011, 86(4), p. 1255-1288.  Doi: 10.2308/accr-10040

[15] Cheng, B., Ioannou, I. and Serafeim, G., Corporate social responsibility and access to finance, Strategic Management Journal, 2014,  35(1), p. 1-23.  Doi:10.1002/smj.2131

[16] Cheng, M., Dhaliwal, D., and Neamtiu, M., Asset securitization, securitization recourse, and information uncertainty, The Accounting Review, 2011, 86(2),  p. 541–586.  Doi:10.2308/accr.00000020  

[17] Chi, J. D., and Lee, D. S., The conditional nature of the value of corporate governance, Journal of Banking & Finance, 2010, 34(2), p. 350-361.  Doi: 10.1016/j.jbankfin.2009.08.001

[18] Cho, S. Y., Lee, C., and Pfeiffer, J.Pr.Jr., Corporate social responsibility performance and nformation asymmetry, Journal of Accounting and Public Policy, 2013,  32(1) p. 71-83.  Doi: 10.1016/j.jaccpubpol.2012.10.005

[19] Cui, J., Jo, H., and Na, H., Does Corporate Social Responsibility Affect Information Asymmetry?, Journal of Business Ethics, 2015, p. 1-24  Doi: 10.1007/s10551-015-3003-8 

[20] Degryse, H., and De Jong, A., Investment and internal finance:asymmetric information or managerial discretion?, International Journal of Industrial Organization, 2006, 24(1), p. 125–147.    Doi: 10.1016/j.ijindorg.2005.03.006

[21] Denis, D. K., and McConnell, J. J., International corporate governance, Journal of financial and quantitative analysis, 2003, 38(1), p. 1-36.  Doi: 10.2307/4126762

[22] Dhaliwal, D., Li, O.Z., Tsang, A.H., and Yang, Y.G., Voluntary non-financial disclosure and the cost of equity capital: The case of corporate social responsibility reporting, The Accounting Review, 2011, 86(1), p. 59-100. Doi: 10.2139/ssrn.1343453

[23] Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A., The law and economics of selfdealing, Journal of financial economics, 2008, 88(3), p. 430-465.  Doi: 10.1016/j.jfineco.2007.02.007

[24] Du, J., Li, W., Lin, B., Wang, Y., Government integrity and corporate investment efficiency, China Journal of Accounting Research , 2018  11(3), p. 213-232.  Doi: 10.1016/j.cjar.2017.03.002

[25] Eccles, R., Ioannou, I., and Serafeim, G., The impact of corporate sustainability on organizational processes and performance, Working paper, Harvard Business School, Harvard University, 2012, h Doi: 10.1287/mnsc.2014.1984

[26] El Ghoul, S., Guedhami, O., Kim, H. and Park, K. Corporate environmental responsibility and the cost of capital: International evidence, Journal of Business Ethics, 2014, p. 1-27.  Doi: 10.1007/s10551-015-3005-6 

[27] El Ghoul, S., Guedhami, O., Kwok, C.C.Y. and Mishra, D.R., Does corporate social responsibility affect the cost of capital?, Journal of Banking and Finance,  2011, 35(9), p. 2388-2406.  Doi:10.1016/j.jbankfin.2011.02.007

[28] El Ghoul, S., Guedhami, O., Nash, R., and Patel, A., New evidence on the role of the media in corporate social responsibility, Journal of Business Ethics, 2016, p.1-29.  Doi: 10.1007/s10551-016-3354-9

[29] Fakhari, H., Kabiri, M., The Moderating Effect of Auditing Report on the Relation between Internal Control Weakness Disclosure and Information Asymmetry, Empirical Research in Accounting, 2018, 7(3),  p. 147-172.  Doi: 10.22051/jera.2017.15988.1704

[30] Fakhari, H., Rezaei Pitenoei, Y., and Noroozi, M., Corporate Social Responsibility Disclosure and Investment Efficiency, Financial Management Strategy, 2017, 4(4), p. 85-106. Doi: 10.22051/jfm.2017.11856.1152

[31] Fazzari, S., Hubbard, G. and Petersen, B., Financing constraints and corporate Investment, Brookings Papers on Economic Activity, 1988, 1, p. 141-206.

[32] Ghaderi, K., Ghaderi, S, and Ghaderi, S., The Effect of Behavioral Factor The Excessive Excellence of Managers on the Effectiveness of Risk Management, Financial Accounting Research and Audit, 2018, 10(37), p. 243-272.

[33] Ghiabi, H., Examining the Relationship between Social Responsibility and Disclosure of Remuneration Paid to Board of Directors. Advances in Mathematical Finance and Applications, 2016, 1(1), p. 1-10. Doi: 10.22034/amfa.2016.526239

[34] Gillan, S., Recent developments in corporate governance: An overview, Journal of CorporateFinance, 2006,  12, p. 381-402.  Doi: 10.1016/j.jcorpfin.2005.11.002

[35] Gomariz, F. C., and Ballesta, J. P. S., Financial reporting quality, debt maturity and investment efficiency, Journal of Banking & Finance, 2014, 40, p. 494-506.  Doi: 10.1016/j.jbankfin.2013.07.013

[36] Goergen, M., and Renneboog, L., Investment policy, internal financing and ownership concentration in the UK, Journal of Corporate Finance, 2001, 7(3), p. 257-284.  Doi:10.1016/S0929-1199(01)00022-0

[37] Guariglia, A., and Yang, J., A balancing act: managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market, 2016, Journal of Corporate Finance, 36, 111-130.  Doi: 10.1016/j.jcorpfin.2015.10.006

[38] Harjoto, M. A., and Jo, H., Corporate governance and CSR nexus, Journal of Business Ethics, 2011, 100(1), p. 45–67.  Doi: 10.1007/s10551-011-0772-6

[39] Hayashi, F., Tobin’s marginal q and average q: A neoclassical interpretation, Econometrica, 1982, 50(1), p. 213-224. ... O%3B2-P&origin=repec

[40] Hermalin, B., Trends in corporate governance, Journal of Finance, 2005, 60, p. 2351-2384.  Doi:10.1111/j.1540-6261.2005.00801.x

[41] Hubbard, R. G., Capital-market imperfections and investment, Journal of Economic Literature, 1998, 36(1), p. 193-225.

[42] Islam, M. A., and Deegan, C., Motivations for an organization within a developing country to report social responsibility information: Evidence from Bangladesh, Accounting, Auditing and Accountability Journal, 2008, 21(6), p. 850–874.  Doi: 10.1108/09513570810893272

[43] Jensen M., and Meckling W.H., Theory of the firm: managerial behaviour, agency costs and ownership structure, Journal of Financial Economics, 1976, 3, p. 305-360.  Doi:10.1016/0304-405X(76)90026-X

[44] Jensen, M., Agency costs of free cash flow, corporate finance and takeovers, American Economic Review Papers and Proceedings, 1986, 76(2), p. 323-329

[45] Jensen, M., Value Maximization, Stakeholder Theory, and the Corporate Objective Function, Journal of Applied Corporate Finance, 2001, 14(3), p. 8-21. 

[46] Jiang, G., Lee, C.M.C. and Yue, H., Tunneling through intercorporate loans: the China experience, Journal of Financial Economics, 2010, 98(1), p. 1-20.  Doi: 10.1016/j.jfineco.2010.05.002

[47] Kanagaretnam, K., Lobo, G. J. and Whalen, D. J., Relationship between analyst forecast properties and equity bid-ask spreads and depths around quarterly earnings announcements, Journal of Business Finance & Accounting,  2005, 32( 9-10), p. 1773-1799.   Doi:10.1111/j.0306-686X.2005.00647.x

[48] Khoshroo, A., Izadikhah, M., Emrouznejad, A., Improving energy efficiency considering reduction of CO2 emission of turnip production: A novel data envelopment analysis model with undesirable output approach, Journal of cleaner production,2018, 187 (20), P. 605-615. Doi: 10.1016/j.jclepro.2018.03.232

[49] Kim, J. B., Luo, L., and Xei, H., Dividend Payments and Stock Price Crash Risk, 2016, available in: www. ssrn. com. DOI: 10.2139/ssrn.2745395

[50] Lehn, K., and Poulsen, A., Free cash flow and stockholder gains in going private transactions, The Journal of Finance, 1989, 44(3), p. 771-787.  Doi: 10.1111/j.1540-6261.1989.tb04390.x

[51] Li, Y., He, J., Xiao, M., Risk disclosure in annual reports and corporate investment efficiency, International Review of Economics & Finance, Available online 7 September 2018. Doi: 10.1016/j.iref.2018.08.021

[52] Lin, C. H., Yang, H. L., and Liou, D. Y., The impact of corporate social responsibility on financial performance: Evidence from business in Taiwan, Technology in Society, 2009, 31(1), p. 56-63.  Doi:10.1016/j.techsoc.2008.10.004

[53] Lopatta, K., Buchholz, F., and Kaspereit, T., Asymmetric information and Corporate Social Responsibility, Business & Society, 2015, p. 1-31.  Doi:10.1177/0007650315575488

[54] Luo, Q., Li, H., and Zhang, B., Financing constraints and the cost of equity: Evidence on the moral hazard of the controlling shareholder, International Review of Economics & Finance, 2015, 36, p. 99-106.  Doi:10.1016/j.iref.2014.11.010

[55] Modigliani, F., and Miller, M. H., The cost of capital, corporation finance and the theory of investment, The American Economic Review, 1958, 48(3), p. 261-297. 8282%28195806%2948%3A3%3C261%3ATCOCCF%3E2.0.CO%3B2-3

[56] Myers, S. C., and Majluf N. S., Corporate financing and investment decisions when firms have information that investors do not have, Journal of Financial Economics, 1984  13, p. 187-221.

[57] Nandy, M. and Lodh, S., Do banks value the eco-friendliness of firms in their corporate lending decision?, Some empirical evidence, International Review of Financial Analysis, 2012, 25, p. 83-93.  Doi: 10.1016/j.irfa.2012.06.008

[58] Nofsinger, J.R., Sulaemanb, J., Varma, A., Institutional investors and corporate social responsibility, Journal of Corporate Finance, Available online 29 July 2019.  Doi:10.1016/j.jcorpfin.2019.07.012

[59] Pawlina, G., and Renneboog, L., Is Investment-Cash Flow Sensitivity Caused by Agency Costs or Asymmetric Information? Evidence from the UK, European Financial Management, 2005, 11(4), p. 483-513. 

[60] Rezaei Pitenoei, Y., and Gholamrezapoor, M., Free Cash Flow, Institutional Ownership and Long-Term Performance, Advances in Mathematical Finance and Applications, 2019, 4(2), p. 31-42. Doi:10.22034/amfa.2019.1865670.1207

[61] Salehi, A., Mohammadi, S., and Afshari, M., Impact of Institutional Ownership and Board Independence on the Relationship between Excess Free Cash Flow and Earnings Management, Advances in Mathematical Finance and Applications, 2017, 2(3), P. 91-105. Doi:10.22034/amfa.2017.533104

[62] Samet, M., and Jarboui, A., How Does Corporate Social Responsibility Contribute to Investment Efficiency?, Journal of Multinational Financial anagement, 2017, 40, p. 33-46.  Doi: 10.1016/j.mulfin.2017.05.007

[63] Scherer, A., Palazzo, G., and Baumann, D., Global rules and private actors: Toward a new role of the TNC in global governance, Business Ethics Quarterly, 2006, 16, p. 502-532.  Doi:10.5840/beq200616446

[64] Stein, J. C., Agency information and corporate investment, Handbook of the Economics of Finance, 2003, 1, p. 111-165.

[65] Sharfman, M. P., and Fernando, C. S., Environmental risk management and the cost of capital, Strategic Management Journal, 2008  29(6), p. 569-592  Doi:10.1002/smj.678

[66] Shleifer, A., and Vishny, R. W., A survey of corporate governance, The journal of finance, 1997, 52(2), p. 737-783.

[67] Taghizade Khanghah, V., and  Zeynali, M. Investigating the Effect of Corporate Social Responsibility on the Investment Efficiency and Innovation, Journal of Health Accounting, 2017, 5(2), p.1-27. Doi:10.30476/jha.2017.39316

[68] Tao, C., Hui, d., Chen, L., Institutional shareholders and corporate social responsibility, Journal of Financial Economics, Available online 15 June 2019.  Doi: 10.1016/j.jfineco.2019.06.007

[69] Venkatesh, P. C., and Chiang, R., Information asymmetry and the dealer’s bid-ask spread: a case study of eanings and dividend announcements, The Journal of Finance, 1986, 41(5), p. 1089-1102.  Doi:10.1111/j.1540-6261.1986.tb02532.x

[70] Waddock, S. A., and Graves, S. B., The corporate social performance-financial performance link, Strategic management journal, 1997, 18(4), p. 303-319.  Doi: 10.1002/(SICI)1097-0266(199704)18:4<303::AID-SMJ869>3.0.CO;2-G

[71] Wang, F., Zhu, Z., and Hoffmire, J., Financial Reporting Quality, Free Cash Flow and Investment Efficiency, 2015,  Doi:10.1016/j.cjar.2016.08.001

[72] Wang, D., Sutherland, D., Ning, L., Wang, Y. and Pan, X.,  Exploring the influence of political connections and managerial overconfidence on R&D intensity in China's large-scale private sector firms, Technovation, 2017, 69, p. 40-53.  Doi:10.1016/j.technovation.2017.10.007

[73] Williams, S. M., Voluntary Environmental and Social Accounting Disclosure Practices in the Asia-Pacific Region: An International Empirical Test of Political Economy Theory, The International Journal of Accounting, 1999, 34(2), p. 209-238.  Doi:10.1016/S0020-7063(99)00006-0