Corporate Social Responsibility Information Disclosure and Corporate Fraud—“Risk Reduction” Effect or “Window Dressing” Effect?

Abstract

We examine the impact in Chinese capital markets of publishing information on corporate fraud in a corporate social responsibility (CSR) report. We develop and test two competing hypotheses of “risk reduction” and “window dressing”. Based on the listed company’s CSR report, we analyze the effect of CSR disclosure on the commission of corporate fraud, fraud detection and the severity of corporate fraud. The research results show that after controlling for the firms’ characteristics and corporate governance factors, the CSR report’s information disclosures have a significantly negative relation to corporate fraud. Specifically, the CSR report’s publication reduces the information asymmetry between the insiders and the stakeholders, thus decreasing the tendency to commit fraud. Our findings support the risk reduction hypothesis but not the window dressing hypothesis. Further research shows that firms with a good CSR disclosure practice have a lower probability of committing corporate fraud and have fewer types of fraud violations, thereby mitigating the severity of corporate fraud.

Quantity, Quality, and Performance of Corporate Social Responsibility Information Disclosure by Listed Enterprises in China: A Regional Perspective

“…However, as improvement to the quality of disclosure increases, it also increases the burden on enterprises to fulfill their social responsibilities, and may also result in the leakage of internal information to competitors to put these enterprises at a disadvantage. Therefore, these enterprises eventually develop the motivation to reduce the details of information disclosure to minimize such risks [17]. Therefore, we propose the following hypothesis: Hypothesis 2.…”

Corporate Social Responsibility Information Disclosure and Innovation Sustainability: Evidence from China

“…Referencing the methods in the literature [8,11,13], according to the information in the CSR report of listed companies in the CSMAR database, we defined a binary dummy variable for the CSR disclosure status. If the company published CSR reports in the year, the CSR is 1; vice versa, the value is 0.…”

“…During the hypothesis testing process, we defined CSR information disclosure as a dummy variable for empirical analysis. First, referring to the research [8,11], we used Runling global rating data (RKS) to measure the quality of the corporate social responsibility information disclosure (CSR2). By introducing companies that have not disclosed social responsibility, we tested the overall sample to determine whether the information effect of CSR information disclosure was still effective.…”

“…CSR information disclosure is an important aspect of non-financial information disclosure. In 2008, China's listed companies began to issue CSR reports to reveal the company's achievements and detail their social responsibility [8]. CSR refers to the pursuit of social welfare maximization and sustainability through effective management to assume corporate responsibility for all stakeholders [9][10][11].…”

“…The CSR report provides useful and important information for understanding the company's situation as presented through a mechanism other than the annual financial report provided by the listed company [8]. However, the empirical analysis of the role of CSR information disclosure in corporate governance involves two opposing hypotheses.…”