Understanding and Contributing to the Enigma of Corporate Social Responsibility (CSR) Assurance in the United States

Abstract

SUMMARY This paper provides an empirical examination of the corporate social responsibility (CSR) assurance market in the United States. Various constituencies have found this market puzzling, as the level of assurance significantly lags international levels (Simnett et al. 2009; KPMG 2011). Results shed light on this enigma by demonstrating that, unlike their international counterparts, U.S. finance and utilities firms are not more likely (than firms in other industries) to obtain CSR assurance despite facing significant social and environmental risks. As these industries are highly regulated in the United States, regulatory oversight may be acting as a substitute for CSR assurance. We also find that highly leveraged firms are less likely to obtain CSR assurance, potentially due to stringent bank monitoring indirectly suppressing demand. Nonetheless, examining the capital market responses to CSR assurance makes the low demand even more puzzling. Specifically, CSR assurance is associated with lower cost of equity capital along with lower analyst forecast errors and dispersion. Furthermore, the reductions in cost-of-capital and forecast dispersion are significantly higher when CSR assurance is provided by an accounting firm. These results have implications for companies that are considering CSR assurance and accounting firms in developing and marketing their CSR assurance services.

Corporate Sustainability Performance and Assurance on Sustainability Reports: Diffusion of Accounting Practices in the Realm of Sustainable Development

“…Fourth, this study complements the literature on assurance on sustainability reports on country-related factors associated with the decision to purchase SA assurance. Previous studies show that companies headquartered in stakeholderoriented countries are more likely to employ independent third parties to provide assurance on their sustainability reports than companies headquartered in shareholder-oriented countries (Simnett et al, 2009;Kolk & Perego, 2010;Dhaliwal et al, 2014;Casey Grenier, 2015). In this study, we also explore whether the relationship between CSP and choices related to the assurance provider, and the scope and level of assurance differs between companies headquartered in more stakeholder oriented vs more shareholder oriented countries.…”

“…First, this study is among the first to systematically explore the relation between CSP and managerial choices related to third-party assurance on sustainability reports. Second, in addition to studies that investigate factors associated with the choice of the assurance provider for companies whose sustainability reports are assured (Hodge et al, 2009;Simnett et al, 2009;Pflugrath et al, 2011;Moroney et al, 2012;Casey & Grenier, 2015;Clarkson et al, 2015;Fernandez-Feijoo et al, 2015), this study adds CSP to explain variety in the type of assurance provider. Third, we also explore the role of CSP in explaining variations in managerial choices related to the scope and the level of SA (Hodge et al, 2009).…”

“…Independent assurance on sustainability reports, and in particular on the CSP information disclosed, may increase stakeholders' confidence in companies' integrity regarding their accountability for their CSP, thus enhancing their corporate reputation (Simnett et al, 2009;Hahn & Kühnen, 2013;Casey & Grenier, 2015). Enhanced stakeholder confidence in the credibility of the CSP information disclosed may also result in competitive advantages, such as better access to finance (Cheng et al, 2014), a reduced cost of equity capital (Dhaliwal et al, 2011), increased analyst coverage, lower analyst forecast errors and dispersion, a reduction of monitoring costs (Dhaliwal et al, 2012;Casey & Grenier, 2015), and higher future cash flows (Lys et al, 2015;Plumlee et al, 2015).…”

Fair Value Information, Audit fees and Audit Committee in Taiwan

“…Considering the strict fair value requirements, accountants tend to classify assets with Level 2 or Level 3 inputs. Casey and Grenier (2015) suggest that accountants in accounting firms having long-term business relation with client firms may provide auditing service based on past experience and management manipulation, mainly due to decreased sensitivity and suspicion, and may charge less auditing fee. Ettredge, Xu, and Yi (2014) suggest fair value assets based on Level 1 input are more reliable than Level 2 or Level 3 inputs due to the open market data available for Level 1 assets.…”

Corporate Social Responsibility Reports: A Review of the Recent Accounting Literature

“…Casey and Grenier (2015) examined what they described as the "enigma" of CSR assurance (CSRA) services in the US: that the level of voluntary assurance sought by US firms significantly lags that of their international counterparts. Through their study, they "find that CSRA is associated with a reduction in the cost-of-capital along with lower analyst forecast errors and dispersion" (p. 100).…”