Can credit rating agencies play a greater role in corporate governance disclosure?

Cash, Daniel

doi:10.1108/cg-04-2018-0150

Cited by 11 publications

(6 citation statements)

References 4 publications

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“…Many investors consider CSR as a crucial value for success, while looking for a greater transparency in relation to company performance (Hart and Milstein, 2003). As they are unable to easily handle viable information on companies' CSR performance, the ranking of the firm by a specialized agency can help them to select the most ethical or responsible companies for their portfolio (Cash, 2018). Escrig-Olmedo et al (2014) argue, however, that some of these ranking are associated with problems of how positive and negative assessments are offset.…”

Section: Introductionmentioning

confidence: 99%

CSR performance and annual report readability: evidence from France

Bacha

Ajina

2019

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Purpose This study aims to examine the relationship between the corporate social responsibility (CSR) performance and the readability of annual report. The shareholder theory suggests that CSR firms will provide more transparent disclosures because this reflects a socially and environmentally responsible behavior and a firm’s commitment to high ethical standards. In the same time, the agency theory offers an opposite view. It predicts that opportunistic managers use CSR as an entrenchment strategy and hide their maneuvers through complex textual financial disclosures. Design/methodology/approach Based on a sample of 100 listed firms on the French CACAll-shares index over the period from 2013 to 2016, the authors use a panel regression analysis and run other estimation methods (IV-2SLS) and simultaneous equation model to address the endogeneity issues. They assess the readability of annual reports using the Gunning-Fog Index and the Flesch Index derived from the computational linguistics literature. Findings The results show a significant positive relationship between CSR performance and the readability of annual report. Firms engaging in CSR practices are more likely to provide transparent disclosures with higher readability because this reflects a socially responsible behavior and a firm’s commitment to high ethical standards. This result supports the stakeholder theory and the corporate reputational view. The finding is also robust to alternative readability measurements and to endogeneity bias. Practical implications This study helps all market participants to more comprehensively evaluate the CSR performance disclosed on annual report. It encourages managers to consider CSR as a means to prevent the opacity risk through improved information quality. It also drives French authorities to better regulate the narrative disclosure of CSR firms and change the way companies design their reporting practices. Moreover, it encourages CSR rating agencies to become the dominant definition of CSR evaluation by granting more importance to the quality of disclosed information. Originality/value This study extends previous research on the potential impact of CSR on information quality measured by annual report readability in the French context. Unlike prior studies on the impact of CSR on information quality, that focus exclusively on earnings management and adopt qualitative approaches to assess the SCR score, the authors use simultaneously the Gunning–Fog Index and the Flesch Index to assess the information quality and extract the CSR score from the CSRHub database of companies’ social, environmental and governance performance.

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Section: Introductionmentioning

confidence: 99%

CSR performance and annual report readability: evidence from France

Bacha

Ajina

2019

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“…In some developed countries, shareholders care greatly about their RoI (Cash, 2018). In the UK, Cash (2018) argued that CSR disclosure can be used to monitor returns as long as financial regulators have the credibility to enforce the law and do proper market monitoring.…”

Section: Literature Reviewmentioning

confidence: 99%

The effects of CSR disclosure on asymmetric information and RoI of publicly listed companies in SRI-Kehati index in Indonesia

Hasudungan

Bhinekawati²

2022

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Purpose This study aims to investigate the influence of corporate social responsibility (CSR) disclosure on asymmetric information and return on investment (RoI) in Indonesia. The research specifically assesses the effects of CSR disclosure along with other independent variables such as total assets, return on equity, capital expenditures, net profit margin and sales growth on asymmetric information and RoI. Design/methodology/approach The study applied a panel econometric regression model to examine and test the effects of CSR disclosure and financial indicators on asymmetric information and RoI. A total of 275 samples were garnered from private and state-owned publicly listed companies selected in the SRI-Kehati index as sustainable firms in Indonesia from 2009 to 2019. Those listed companies in the SRI-Kehati index have market recognition and are able to maintain sustainability practices in their business doings. Asymmetric information was calculated by measuring the spread of market share prices. CSR disclosure was measured with global reporting initiative standards. Other variables did not require calculation. Findings This study discerns the significant influence of CSR disclosure on asymmetric information and RoI on the listed firms of the SRI-Kehati Index in Indonesia. To articulate, the more transparent CSR disclosure is, the asymmetric information should be lower. Besides that, more comprehensive CSR disclosure is associated with a better corporate return of investment. In scrutinizing the control variables, this research validates the significant influence of corporate assets and sales revenue on both dependent variables. Research limitations/implications This research has some limitations that require further research. First, the research was conducted in Indonesia. However, other Southeast Asian markets may have their own uniqueness. Therefore, further research is needed in other specific Southeast Asian countries. Second, the sampling bounds on the corporation which gained sustainable recognition in SRI-Kehati Index. Future studies can extend more observation by comparing SRI-Kehati index to firms, which are not listed in the index. Practical implications This study recommends better capital market monitoring and evaluation to improve the quality of the firms’ reports in both business and social aspects. By investing more in philanthropic and social activities, firms can signal the market credibility to their various external stakeholders on their market adjustment to changing external business environment. Social implications As for society, robust CSR disclosures will facilitate investors’ understanding of the conditions before making an investment in public listed companies. At the same time, companies issuing the disclosures are expected by society to perform responsibly, as illuminated in the report. As a result, the CSR disclosures will create a virtuous cycle of sustainability between the company and the society. Originality/value First, this research reinforces the global corporate governance concern to urge more corporate disclosures on firm performance in an Indonesian context. Second, this study fills the research gap on the association of CSR disclosure to asymmetric information in Indonesian literature. Third, the findings underpin the integration of social responsibility on the firms’ core business decision-makings to warrant business credibility to all firms’ stakeholders in Indonesia.

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“…With the wave of corporate scandals, corporate disclosure and transparency have become progressively more important not only to investors but also to companies. This is because transparency improves, among others, compliance with the disclosure guidelines (Arif et al , 2021), reporting credibility (Arthur et al , 2017), quality of the accounting information (Tshipa et al , 2018), financial performance (Oino, 2019; Sekhon and Kathuria, 2019; Alipour et al , 2019; Alareeni and Hamdan, 2020; Chijoke-Mgbame et al , 2020), the credit rating (Cash, 2018) and company’s reputation (Bacha and Ajina, 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

Voluntary corporate governance disclosure and bank performance: evidence from an emerging market

Nobanee

Ellili

2021

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Purpose This study aims to explore the extent of voluntary corporate governance disclosure in the annual reports of banks in the UAE, operating in an emerging economy in the Gulf Cooperation Council region. It also examines the effect of this non-financial disclosure on bank performance by differentiating conventional and Islamic banks. Design/methodology/approach This study applies content analysis to explore the extent of voluntary corporate governance disclosure using data collected from the annual reports of all the banks traded on the UAE financial markets from 2003 through 2020. It further examines the potential effect of voluntary disclosure on bank performance using dynamic panel data regressions. Findings The results indicate a low level of voluntary corporate governance disclosure in the annual reports for most disclosure indices. However, conventional and Islamic banks do not differ significantly. Additionally, the results of the robust dynamic panel data from the two-step generalized method of moments system estimation confirm that voluntary corporate governance disclosure does not affect bank performance significantly. Practical implications The findings of this study would benefit the central bank and lawmakers in the UAE in developing a framework for appropriate voluntary disclosure and enhancing the corporate governance framework to improve the quality of annual reports. Originality/value This study contributes to the literature on the extent of corporate governance disclosure, as well as its association with bank performance in an emerging economy by differentiating between conventional and Islamic banks.

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Can credit rating agencies play a greater role in corporate governance disclosure?

Cited by 11 publications

References 4 publications

CSR performance and annual report readability: evidence from France

CSR performance and annual report readability: evidence from France

The effects of CSR disclosure on asymmetric information and RoI of publicly listed companies in SRI-Kehati index in Indonesia

Voluntary corporate governance disclosure and bank performance: evidence from an emerging market

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