Do Markets Punish or Reward Corporate Social Responsibility Decoupling?

Abstract

This article analyzes the relationship between corporate social responsibility (CSR) decoupling and financial market outcomes. CSR decoupling refers to the gap between CSR disclosure and CSR performance. More specifically, we analyze the effect of CSR decoupling on analysts’ forecast errors, cost of capital, and access to finance. We also examine the moderating effect of forecast errors on relationships between CSR decoupling and cost of capital and access to finance. For a sample of U.S. firms consisting of 7,681 firm-year observations for the period 2006–2015, our empirical evidence supports the idea that a wider gap results in higher analysts’ forecast errors, a greater cost of capital, and reduced access to finance. In addition, our results show that forecast errors enhance the effect of the CSR decoupling on cost of capital and access to financial resources. We also note that external monitoring, in the form of greater analysts’ coverage, reduces CSR decoupling.

Family Firms and Coupling among CSR Disclosures and Performance

“…This situation is aggravated in companies with less sustainable behaviour. In this regard, the literature has begun to refer to them as CSR gap, a term that identifies the existence of decoupling between what the company does and what it says it does (Sauerwald and Su 2019), either because companies need to legitimise themselves before their stakeholders or because they avoid creating high expectations among their stakeholders, which would lead them to face a possible risk of not being able to satisfy them, and could be accused of being hypocritical (García-Sánchez et al 2020b).…”

“…To avoid biased results, a set of control variables have been included in the model by García-Sánchez et al (2020b): company size measured by the logarithm of assets (Fsize); the age of the company represented by the number of years that have elapsed since its creation (Fage); growth opportunities identified by the average growth in sales over five years (GrowthOpp); the economic return on assets (ROA); the level of financial indebtedness (Flev); the internationalisation of the company represented by the percentage of investments in assets in other countries (Finter); working capital (Fwc); the number of analysts covering the company (CovAna). The adequacy of internal corporate governance mechanisms is also monitored using the GoverScore variable extracted from Thomson Reuters.…”

“…On the other hand, the academic literature has evidenced that CSR reporting content is ambiguous and presents impression management strategies to manipulate the opinion of stakeholders, limiting its usefulness in the decision-making process (García-Sánchez et al 2020b). These practices are especially worrisome in less sustainable companies, as there is a decoupling between a firm's CSR disclosures and performance (Sauerwald and Su 2019).…”

“…This paper contributes to previous literature on CSR decoupling and family business. First, we contribute to the literature on CSR decoupling (Winn and Angell 2000;Delmas and Burbano 2011;Walker and Wan 2012;Bowen 2014;Hawn and Ioannou 2016;Sauerwald and Su 2019;Tashman et al 2019;Graafland and Smid 2019;García-Sánchez et al 2020b), highlighting the role that one of the most relevant blockholders, family firms, can play in corporate decisions regarding the disclosure of more useful and reliable information to various stakeholders. Secondly, this study contributes to the family business literature by focusing on the decisions that these companies make about the relevance of the information they disclose and the adequacy to their CSR actions.…”

Socio‐emotional wealth and corporate responses to environmental hostility: Are family firms more stakeholder oriented?

“…Moreover, scholars, after a long debate, have reached to the conclusion that it pays to be green; however, the relationship between CSR and financial performance is economically modest at the firm level (see Brooks & Oikonomou, 2018; Friede, Busch, & Bassen, 2015; García‐Sánchez, Hussain, Khan, & Martínez‐Ferrero, 2020). This puzzling situation resulted in investors' reluctance to invest in pro‐social firms and shifted scholars' attention to an important question: “When does it pay to be green?” (Martinez‐del‐Rio et al, 2015, p. 2).…”