Effect of Financial Reporting Quality on Sustainability Information Disclosure

Abstract

Interest in corporate social responsibility (CSR) information has increased in recent years. This has led companies to set aside the classic economic view and to adopt the ‘triple bottom line’, reporting social, environmental, and financial information, in order to satisfy their stakeholders' needs. Companies that provide high quality financial information tend to be more conservative in their accounting and less inclined to carry out unethical practices such as earnings management. Accordingly, they are more socially responsible. The aim of this paper is to analyse the relationship between financial reporting quality and the quality of CSR information. To do so, we studied a sample composed of 747 international listed non‐financial companies for the period 2002–2010. The results obtained from a Tobit method for panel data show that conservative companies, with a high level of accruals quality and/or those that carry out earnings management practices to a lesser extent, report high quality financial information and, moreover, high quality CSR information. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment.

The Corporate Social Responsibility of Family SMES: An Exploratory StudyBased on the Development of Knowledge

“…This result corroborates previous research Martínez-Ferrero et al [12]. The negative relationship between conservatism and knowledge of CSR indicates that the more the behavior conservatism is high the more CSR is low.…”

“…Furthermore, it has a tendency to develop its knowledge of different dimensions of CSR through listening internal and external stakeholders and environmental protection. The findings provided by Choi [12] on the Korean companies, reveal that the age of the company, affects positively the knowledge of CSR. Other researches provide the existence of a positive and statistically significant association between companies' age and knowledge of CSR.…”

“…Therefore, they have only learning in simple loop which does not touch their theories-in-use since they accumulate a low operational and institutional knowledge. Finally, Martínez-Ferrero et al [12] show that conservatism has a negative and significant impact on CSR. This research establishes hypothesis 2 according to the literatures described above.…”

Earnings Management and CSR Disclosure. Family vs. Non-Family Firms

“…As a matter of fact, a firm's legitimacy depends both on its financial and CSR reputation-the mechanisms for perception creation are, respectively, financial and CSR reporting [12]. Consistently, Martinez-Ferrero et al [13] argue that firms with poor financial reporting might use standardized social and environmental information as a tool of legitimacy, to compensate for the poor quality of financial information. Investors are interested in financial information, but they also positively value social and environmental information [14,15]; therefore, companies, involved in earnings management, might be more prone to providing CSR information in order to create a socially and environmentally responsible image, and lower the risk of a close monitoring of their financial statements.…”

“…Some studies [18,19] have analyzed whether CSR disclosure and EM are used in a substitutive or complementary relationship, as a response to political pressure; other authors have investigated the relationship between financial and CSR reporting quality [13]. Only the pioneering study of Sun et al [20] has addressed the issue of a possible use of environmental information in order to disguise earnings manipulation.…”