Does external assurance on CSR reporting contribute to its higher quality? Empirical evidence from China

Abstract

This paper examines the difference that the assurance brings to the quality of CSR reports in the Chinese institutional setting, in particular, the difference in quality (proxy – RKS ranking) of assured and unassured CSR reports, as well as whether the high ownership concentration and corresponding to it “entrenchment effect” obstruct the positive impact the assurance exerts on the quality of CSR reports. The paper examines CSR reports on 2,292 firm-year observations of large Chinese companies over three years (2015–2018). The hypothesis development process predicates on the signaling and stakeholder theories, whilst this study applies regression analysis to test the hypotheses. Consistent with the predictions of signaling and stakeholder theories, the paper finds that assurance contributes to the higher quality of CSR reports. Moreover, the study finds that assured CSR reports have higher sub-scores in all four aspects of RKS ranking. However, as ownership concentration exceeds 50 per cent and reaches the majority, it thwarts the advancement in the quality of CSR reports through its assurance. The paper provides an initial empirical account of the role of assurance in the emerging CSR reporting practice in China. The paper contributes to the modest body of empirical research on the function of external assurance in the CSR area by explicating the role played both by the accounting (external assurance) and corporate governance (ownership concentration) infrastructure to ensure high quality of CSR reporting. The paper briefs local, international regulatory authorities and the business community about the importance of external assurance for the CSR reporting quality.

Does corporate governance moderate the effect of corporate social responsibility on a firm’s financial performance?

“…With this activity, companies try to mitigate the concerns of stakeholders and increase their legitimacy in their eyes (D'Souza et al, 2022; Pasko et al, 2021c). Moreover, to maintain their 'license' to operate in society, companies resort to various CSR strategies and tactics in trying to solidify their corporate citizenship (Homer, 2022;Pasko et al, 2021d).…”

Does female representation on corporate boards boost the strengthening of internal control in socially responsible firms?

“…Extant studies were occupied with the question of why specific entities are more efficient in their CSR activities than others (Heinberg et al, 2021;Khlif et al, 2020;Pasko et al, 2022;Pasko, Zhang, Bezverkhyi, et al, 2021;Sokil et al, 2020). And corporate transparency features atop as an answer to the above questions, since it is believed that corporate transparency serves as "a boundary condition of the effects of CSR activities on the consumer-brand relationship" (Heinberg et al, 2021, p. 45).…”