A Study On The Adding Effect And Saving Effect Of Corporate Social Responsibility Disclosure

Corporate social responsibility is one of the emerging topics in the world.With increasing challenges of global warming,pollution and employee warfare,more and more countries are paying attention to this issue.They also call the companies to shift their focus from economic interest to social warfare.In China,CSR research is at the preliminary step.Currently,China is promoting CSR as some companies do not have sufficient awareness of CSR.What is the exactly the value of CSR? Can CSR improve the firm's value? What does CSR disclosure benefit to the firm? In this paper,we try to explore the impact of CSR disclosure on firm's value.This paper retrospects the related literature on the relationship between CSR and firm's value.Prior research demonstrates that CSR can make impact on firm's value.Value Maximization Perspective demonstrates that CSR disclosure can build good social reputation,reduce information asymmetry,and improve the firm's value.Agency Cost Perspective demonstrates that CSR is the agency cost for the firm.Based on prior research and hypothesis development,we will investigate the Adding Effect and Saving Effect of CSR disclosure.Adding Effect is defined as CSR disclosure can improve the firm's value.Saving Effect is defined as CSR disclosure that can buffer the negative effect on the firm.Based on 3132 CSR reports in China,we find that CSR disclosure adds incremental value for the firm.Adding Effect is more pronounced in local SOEs and private owned enterprises,compared with central SOEs in sub sample tests.The effect is more pronounced when the firm discloses donation amount,compared with other information,such as third party verification and third party identity.Based on 3132 CSR reports in China,we find that CSR disclosure can buffer the negative effect from net income decreasing,analyst revision downward,negative news reports,and litigation.We find that CSR disclosure can buffer the negative effect from those four situations.Furthermore,we find that Saving Effect is more pronounced in the local SOEs and private owned enterprises that suffer from economic negative shock,such as net income decreasing and analyst revision downward.Comparably,we also find that the effect is more pronounced in the central SOEs that suffer from reputable negative shock,such as negative news report and litigations.To solve the endogenous problems,we adopt abundant identification strategies and robust tests.To tackle the possible omission variable problem,we adopt the average CSR score as instrumental variable to reduce the possible estimated errors and get the similar results.We also adopt PSM to remove the firm-level heterogeneous differences.We match the donation amount by several firm level variables,such as financial performance,leverage level,firm's age and so on.After the matching,most of firm-level differences are removed and the results are consistent.The possible alternative explanation argues that financial performance is the crucial factor and it may affect the CSR disclosure.To overcome the competitive hypothesis,we subdivide the samples into top 50% and bottom 50% by financial performance.We find that the differences in financial performance are insignificant and refute the alternative explanations.To increase the validity of the results,we conduct sensitivity analysis in robustness check.The results show that 1 unit of CSR investment(donation)generates 0.886 unit increase in firm's value.To examine the possible channels of CSR disclosure and firm's value,this paper examines 3 possible channels,including government subsidies,sales growth and reduce violation costs.We also substitute the Tobin-Q by government subsidy in the model.We find that the higher donation amount,the higher subsidy the company can obtain from the government;as well as in the situation that the firm suffers from net income decreasing.CSR disclosure increases firm's value through increasing sales and reducing violation costs.In summary,CSR is one of the emerging topics around the world.Based on Chinese unique environment,this paper explores the adding effect of CSR disclosure on firm's value.We also examine the saving effect in the firms that suffer from negative shock.This paper provides the insights for government,companies and investors.