The impact of corporate social disclosure on investment behavior: A cross-national study

The primary purpose of financial reporting is to provide information that is relevant to users (SFAC No. 2, "Qualitative Characteristics of Accounting Information"). In an international context the usefulness of accounting information may systematically differ for users based upon their nationality. Corporate social disclosure (CSD) is one area of accounting disclosure that has been found to differ across countries (Freedman and Stagliano, 1992; Meek et al., 1995, Fekrat et al., 1996; Gamble et al., 1996; Gray et al., 2001; Newson and Deegan, 2002). The underlying reasons for these differences have not been fully explained. This study uses the stakeholder concept to develop a greater understanding of the relationship between the nationality of the investor and disclosure needs. This relationship is examined in a cross-national experiment designed to assess the impact of CSD on investment behavior.; Conceptually, this study hypothesized that cultural values on the social responsibilities of a corporation influence investors' beliefs on the relevant stakeholders of a corporation. These beliefs in turn affect the impact of CSD on investment behavior. Specifically, investors who believe that a corporation is responsible to consider the needs of a broad range of stakeholders (stakeholder capitalism) will have a significant reaction to CSD in their investment decisions. Conversely, investors who believe that a corporation's primary responsibility is to increase shareholders' wealth (shareholder capitalism) will not react significantly to CSD in their investment decisions.; Overall, the findings from this study revealed that there are significant, systematic cross-national differences in the investment response to CSD and this response can be predicted using the stakeholder concept. Thus, as hypothesized culture influences investors' beliefs on the relevant stakeholders of a corporation this, in turn influences their investment behavior. These findings provide evidence supporting the use of the stakeholder concept as theoretical framework for CSD and add to the stakeholder literature by applying the stakeholder concept in an international accounting context. From a practical perspective, the finding that the relevance of CSD differs across countries should be useful to companies that prepare financial statements for an international market. It will also be useful to national accounting standard setters who increasingly are interested in the impact of country specific standards on the international investor. In addition, this information may provide insight to the International Accounting Standards Board (IASB) regarding the impact of cross-cultural differences in the information needs of investors. (Abstract shortened by UMI.)...