Idiosyncratic Risk and Disclosure of Corporate Social Responsibility: Emphasizing the Role of Corporate Governance

Document Type: Research Paper

Authors

1 Department of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

2 Department of Economic and Social Science, Shahid Chamran University, Ahvaz, Iran

3 Department of Economics, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

4 Department of Accounting, Masjed-soleiman Branch, Islamic Azad University, Masjed-soleiman, Iran

10.22034/amfa.2020.1878505.1293

Abstract

In this study, the impact of corporate social responsibility (CSR ) disclosure on idiosyncratic risk has been investigated concerning three stakeholder theory, information asymmetry, and risk management. It also goes further and explores the impact of some corporate governance mechanisms such as ownership structure, board characteristics, and incentive contracts on this relationship. To achieve the research objectives, 142 companies from Tehran Stock Exchange were selected through the systematic elimination method from 2010 through 2018 and the research hypotheses were tested using a combined data regression model with an integrated approach. The results show that CSR disclosure; by increasing transparency, reducing uncertainty, stakeholder satisfaction, and positive market signaling; reduces idiosyncratic risk. It was also found that the ownership concentration and managers’ remuneration by reducing CSR reporting lead to increased idiosyncratic risk, but government ownership, the duality of the CEO’s duties, the independence of the board of directors and the managers' equity decrease the corporate idiosyncratic risk by increasing CSR reporting. However, the effect of managers' remunerations and state ownership on the relationship between CSR reporting and corporate idiosyncratic risk was not confirmed at the 95% confidence level. Overall, from a theoretical viewpoint, a good corporate governance system can improve the quality of CSR, thereby improving corporate social reputation and reducing corporate idiosyncratic risk.

Keywords


[1] Albuquerque, R., Koskinen, Y., Zhang, Ch., Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence, Management Science, 2019, 65(10), P. 4451-4469. Doi:10.1287/mnsc.2018.3043

[2] Andreou, P. C., Antoniou, C., Horton, J., Louca, C., Corporate Governance and Firm-Specific Stock Price Crashes, European Financial Management, 2016, 22(5), P. 916-956. Doi:10.1111/eufm.12084

[3] Arab, R., Gholamrezapoor, M., Toraj, E., The Mediating Effect of Information Asymmetry and Agency Costs on the Relationship Between CSR and Investment Efficiency, Advances in Mathematical Finance and Applications, 2020, 5(2), P. 1-19. Doi:10.22034/AMFA.2019.1870787.1238 (in Persian).

[4] Banimahd, B., Arabi, M., Hassanpour, Sh., Empirical Research and Methodology in Accounting, 2016, First Edition, P. 225-230. (in Persian).

[5] Benlemlih, M., Girerd-Potin, I., Corporate Social Responsibility and Firm Financial Risk Reduction: On the Moderating Role of the Legal Environment, Journal of Business Finance & Accounting, 2017, 44(7/8), P. 1137-1166. Doi:10.1111/jbfa.12251

[6] Cho, S. Y., Lee, C., R.J. Pfeiffer Jr., Corporate Social Responsibility Performance and Information Asymmetry, Journal of Accounting and Public Policy, 2013, 32(1), P. 71-83. Doi: 10.1016/j.jaccpubpol.2012.10.005

[7] Darabi, R., Vaqfi, H., Salmanian, M., Investigating the Relationship between Corporate Responsibility Reporting with Value and Risk of Companies Listed in Tehran Stock Exchange, Value and Behavioral Accounting Journal, 2016, 1(2), P. 193-217. Doi:10.18869/acadpub.aapc.1.2.193 (in Persian).

[8] Dhaliwal, D., Li, O. Z., Tsang, A., Yang, Y. G., Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency, Journal of Accounting and Public Policy, 2014, 33(4), P. 328–355. Doi: 10.1016/j.jaccpubpol.2014.04.006

[9] Didar, H., Mansourfar, GH., Zare, E., The impact of corporate governance quality on disclosure quality with emphasis on moderating role of product market competition in firms listed on the Tehran Stock Exchange, Journal of Financial Accounting Research, 2017, 9(1), P. 95-117. Doi:10.22108/FAR.2017.85013 (in Persian).

[10] Dyck, A.V., Lins, K., Roth, L. F., Wagner, H., Do institutional investors drive corporate social responsibility? International evidence, Journal of Financial Economics, 2019, 131(3), P.693-714.Doi: 10.1016/j.jfineco.2018.08.013

[11] Fakhari, H., Malekian, E., Jafaei Rahani, M., Explanation and Ranking of Components and Indicators of Environmental, Social Reporting and Corporate Governance Using Hierarchical Analysis in Listed Companies, Journal of Value and Behavioral Accounting, 2019, 2(4), P. 153-187. Doi:10.18869/acadpub.aapc.2.4.153 (in Persian).

[12] Foroghi, D., Amiri, H., Javanmard, M., Impace of Corporate Social Responsibility to Cash Holdings Through Synchronous Effect of Chosen Variables, Journal of Financial Accounting Research, 2018, 10(1), P.19-36. Doi:10.22108/FAR.2018.105438.1125 (in Persian).

[13] Freeman, R.E., Strategic Management: A Stakeholder Approach (Boston: Pitman/ Ballinger), 1984.

[14] Friedman, M., The Social Responsibility of Business Is to Increase Its Profits, New York TimesMagazine, 13 September 1970, P. 122-126.

[15] Garmsiri, S., Vakili Fard, H., Talebnia, GH., Investigating the Impact of Corporate Social Responsibility Reporting, Corporate Governance Characteristics, Financial Performance on the Corporate Reputation of Tehran Stock Exchange, journal of Management Accounting, 2018, 10(35), P. 31-43. (in Persian).

[16] 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

[17] Gras-Gil, E., Manzano, M.P., Fernandez, J.H., Investigating the relationship between corporate social responsibility and earnings management: Evidence from Spain, Business Research Quarterly, 2016, 19(4), P.1-11. Doi:10.1016/j.brq.2016.02.002

[18] Gregory, A., Whittaker, J., Yan, X., Corporate Social Performance, Competitive Advantage, Earnings Persistence and Firm Value, Journal of Business Finance & Accounting, 2016, 43(1/2), P. 3–30.Doi:10.1111/jbfa.12182

[19] Hassas Yeganeh, Y., Barzegar, GH., Theoretical framework of corporate social responsibility and its functions in the field of accounting, journal of Management Accounting, 2014, 7(22), P. 109-133. (in Persian).

[20] Jackson, G., Apostolakou, A., Corporate Social Responsibility in Western Europe: An Institutional Mirror or Substitute? Journal of Business Ethics, 2010, 94(3), P. 371-394. Doi:10.1007/s10551-009-0269-8

[21] Khan, A., Muttakin, M.B., Siddiqui, J., Corporate governance and corporate social responsibility disclosures: Evidence from an emerging economy, Journal of Business Ethics, 2013, 114(2), P. 207–223. Doi:10.1007/s10551-012-1336-0

[22] Khorshidvand, F., Sarlak, A., Examining the Relationship between Corporate Governance and the Corporate Performance Valuation, Advances in Mathematical Finance and Applications, 2017, 2(3), P.29-39. Doi:10.22034/AMFA.2017.533097 

[23] Kim, Y., Park, M., Wier, B., Is Earnings Quality Associated with Corporate Social Responsibility? Accounting Review, 2012, 87(3), P. 761-796. Doi:10.2308/accr-10209

[24] Lahrech, H., Disarming the Value Killers: CSR Viewed through a Sharp Risk Management Lens, Working Paper (University of Nottingham), 2011.

[25] La Porta, R., Lopez, F., Shleifer, A., Vishny, R., Agency problems and dividend policies around the world, The Journal of Financ, 2000, 55(1), P. 1–13. Doi:10.1111/0022-1082.00199

[26] Latapí Agudelo, M.A., Jóhannsdóttir, L., Davídsdóttir, B., A literature review of the history and evolution of corporate social responsibility, International Journal of Corporate Social Responsibility, 2019, 4(1), P. 1-23. Doi:10.1186/s40991-018-0039-y

[27] Liu, X., Zhang, Ch., Corporate governance, social responsibility information disclosure, and enterprise value in China, Journal of Cleaner Production, 2016, 142(2), P.1075-1084. Doi:10.1016/ j.jclepro.2016.09.102

[28] Maretno, H., Hoje, J., Legal vs. normative CSR: Differential impact on analyst dispersion, stock return volatility, cost of capital, and firm value. J. Bus. Ethics, 2015, 128(1), P. 1–20. Doi:10.1007/s10551-014-2082-2

[29] Mehrani, S., Hoseini, A., Heidari, H., and Pouyanfar, A., Investigating the Effect of Ownership Structure on the Value of Companies Listed in Tehran Stock Exchange, Financial Research, 2013, 15(1), P.129-148. Doi:10.22059/JFR.2013.35436 (in Persian).

[30] Mickaels, A., Gruning, M., The impact of corporate identity on corporate social responsibility disclosure, International Journal of Corporate Social Responsibility, 2018, 3(3), P. 1-13. Doi:10.1186/s40991-018-0028-1

[31] Tavana, M., Izadikhah, M., Di Caprio, D., Farzipoor Saen, R., A new dynamic range directional measure for two-stage data envelopment analysis models with negative data, Computers & Industrial Engineering, 2018, 115, P. 427-448, Doi: 10.1016/j.cie.2017.11.024.

[32] Orlitzky, M., Schmidt, F. L., Rynes S. L., Corporate Social and Financial Performance: A Meta-analysis, Organization Studies. London: SAGE Publications, 2003, 24(3), P. 403–441. Doi:10.1177/0170840603024003910