Abstract:Environmental and social disclosures entail costs, yet increasingly, large listed firms are making higher and better quality disclosures. In this paper we examine the link between a firm's environmental and social disclosures and its profitability and market value. We find that past profitability drives current social disclosures. However, consistent with the existing evidence, we do not find any relation between environmental disclosures and profitability. Further, while prior literature has largely focussed on environmental disclosure, we find that it is the social disclosures that matter to investors. We find that firms that make higher social disclosures have higher market values. Further analysis reveals that this link is driven by higher expected growth rates in the cash flows of such companies. Overall our findings are consistent with the resource based view of the firm and the voluntary disclosure theory, suggesting that firms with greater economic resources make more extensive disclosures which yield net positive economic benefits.

In this paper we draw on insights from theories in the management and corporate governance literature to develop a theoretical model that makes explicit the links between a firm's corporate social responsibility (CSR) related board attributes, its board CSR strategy, and its environmental and social performance. We then test the model using structural equation modeling approach.We find that the greater the CSR orientation of the board (as measured by the board's independence, gender diversity, and financial expertise on audit committee), the more proactive and comprehensive the firm's CSR strategy, and the higher its environmental and social performance. Moreover, we find this link to be endogenous and self-reinforcing, with superior CSR performers tending to further strengthen their board CSR orientation.This result while positive is also suggestive of the widening of the gap between the leads and laggards in CSR.Therefore the question arises as to how 'leaders' are using their superior CSR competencies seen by many scholars as a source of corporate (at times unfair) competitive advantage. Stakeholders of corporations therefore need to be cognizant of this aspect of CSR when evaluating a firm's CSR activities. Policy makers also need to be cognizant of these concerns when designing regulation in this field.

We examine the link between a firm's environmental (E) and social (S) disclosures and measures of its risk including total, systematic, and idiosyncratic risk. While we do not find any link between a firm's E and S disclosures and its systematic risk, we find a negative and significant association between these disclosures and a firm's total and idiosyncratic risk. These are novel findings and are consistent with the predictions of the stakeholder theory and the resource based view of the firm suggesting that firms which make extensive and objective E and S disclosures promote corporate transparency that can help them build a positive reputation and trust with its stakeholders, which in turn can help mitigate the firm's idiosyncratic/operational risk. These findings are important for all corporate stakeholders including managers, employees, and suppliers who have a significant economic interest in the survival and success of the firm.

We examine the link between the monitoring capacity of the board and corporate performance of UK listed firms. We also investigate how firms use the flexibility offered by the voluntary governance regime to make governance choices. We find a strong positive association between the board governance index we construct and firm operating performance. Our results imply that adherence to the board-related recommendations of the UK Corporate GovernanceCode strengthens the board's monitoring capacity, potentially helping mitigate agency problems, but that investors do not value it correspondingly. Moreover, in contrast to prior UK findings suggesting efficient adoption of Code recommendations, we find that firms at times use the Code flexibility opportunistically, aiming to decrease the monitoring capacity of the board, which is followed by subsequent underperformance. This finding questions the effectiveness of the voluntary approach to governance regulation followed in the UK and in many countries around the world. K E Y W O R D Sagency theory, board committees, board independence, board of directors, comply or explain, corporate governance, corporate governance codes, firm performance, managerial opportunism, nonexecutive directors

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