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Author Stephanie Termeulen
Student number 304834
Supervisor K.E.H. Maas
Date July 2011
Erasmus University Rotterdam
Erasmus School of Economics
The influence of Corporate Social Responsibility reporting on reputation
Thesis: Accounting, Auditing and Control
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Preface
Deze scriptie heb ik geschreven ter afronding van mijn Master opleiding, Accountancy, Auditing and
Control aan de Erasmus Universiteit. Graag wil ik mijn begeleidster, Karen Maas bedanken voor haar
kritische feedback op mijn scriptie.
De afgelopen jaren heb ik intens genoten van mijn studententijd aan de Erasmus Universiteit. Vooral
mijn studietijd aan de Haskayne School of Business in Calagry was onvergetelijk. Deze mooie tijd had ik
niet kunnen beleven zonder steun van mijn ouders, zussen, vriend en vrienden. Hen wil ik hiervoor graag
bedanken.
Stephanie Termeulen
Oude Wetering, 15 juli 2011
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Abstract
In this paper the impact of Corporate Social Responsibility (CSR) reporting on reputation is investigated.
Disclosed CSR information is observed by stakeholders. By publishing a CSR report a company provides
its stakeholders with more information about the company. When a CSR report is of higher quality,
stakeholders are provided with more transparent information. The agency theory, information
asymmetry, legitimacy theory and stakeholder theory suggest that due to a CSR report an impact on the
reputation is expectable. In this paper it is to be expected that higher CSR reporting quality increases the
reputation of a company.
CSR reporting quality is measured with the application level that is provided by the Global Reporting
Initiative (GRI) Report List. The reputation index from Fortune 500 is used as proxy for the reputation.
The CSR reporting of current year affects the reputation of the next year. The timeframe of this paper
contains CSR reporting from 2005 till 2009. From this selected time period 85, 106, 138, 167 and 175
respectively data points are observed.
Unlike prior studies, this paper concludes that CSR reporting has no influence on reputation. The
outcome of this paper indicates that other variables than CSR reporting has an influence on the
reputation of a company.
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Table of Contents
Chapter 1 Introduction..............................................................................................................................11
1.1 Research question and research method.................................................................................12
1.2 Relevance..................................................................................................................................14
1.3 Structure....................................................................................................................................15
Chapter 2 Theoretical Background............................................................................................................16
2.1 Disclosures.......................................................................................................................................16
2.1.1 Financial disclosure...................................................................................................................16
2.1.2 Voluntary disclosure.................................................................................................................17
2.1.4 Summary disclosures................................................................................................................17
2.2 Corporate Social Responsibility.......................................................................................................18
2.2.1 Definition of Corporate Social Responsibility............................................................................18
2.2.2 Developments in Corporate Social Responsibility.....................................................................20
2.2.3 Corporate Social Responsibility reporting.................................................................................21
2.2.4 Corporate Social Responsibility reporting guidelines................................................................21
2.2.5 Summary Corporate Social Responsibility................................................................................23
2.3 Positive Accounting Theory.............................................................................................................23
2.3.1 Agency theory...........................................................................................................................24
2.3.2 Information asymmetry............................................................................................................26
2.3.3 Legitimacy theory.....................................................................................................................28
2.3.4 Stakeholder theory...................................................................................................................30
2.3.5 Summary Voluntary Disclosures and Positive Accounting Theory............................................31
Chapter 3 Literature Review......................................................................................................................32
3.1 Incentives of Corporate Social Responsibility strategy and reporting..............................................32
3.1.1 Corporate Social Responsibility strategy and reporting incentives..........................................32
3.1.2 Implementing Corporate Social Responsibility strategy and report.........................................37
3.1.5 Summary incentives Corporate Social Responsibility strategy and report................................39
3.2 Impacts of Corporate Social Responsibility Report..........................................................................39
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3.2.1Forecast accuracy......................................................................................................................39
3.2.2 Public sentiment.......................................................................................................................42
3.2.3 Financial impacts......................................................................................................................44
3.2.4 Summary impacts.....................................................................................................................48
Chapter 4 Hypotheses development.........................................................................................................50
4.1 Development of the main hypothesis..............................................................................................50
4.2 Difference compared to previous studies........................................................................................52
4.3 Development of sub hypotheses.....................................................................................................54
4.4 Summary hypothesis development.................................................................................................57
Chapter 5 Methodology............................................................................................................................58
5.1 Sample.............................................................................................................................................58
5.1.1 Used databases.........................................................................................................................58
5.1.2 Development sample and time period.....................................................................................59
5.2 Methodology of statistical research................................................................................................60
5.3 Data.................................................................................................................................................61
Chapter 6 Analytical Results......................................................................................................................64
6.1 Descriptive analysis..........................................................................................................................64
6.2 Statistical Results.............................................................................................................................67
6.2.1 Correlation................................................................................................................................67
6.2.2 Regression................................................................................................................................72
Chapter 7 Conclusion.................................................................................................................................80
7.1 Discussion........................................................................................................................................80
7.2 Implications.....................................................................................................................................82
7.3 Limitations and further research.....................................................................................................83
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References.................................................................................................................................................84
Appendix A: Companies included in sample..............................................................................................88
Appendix B: Distribution CSR report levels over all variables....................................................................98
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Chapter 1 Introduction
The last decades environmental and social related impact of companies is under rising attention of the
public. The ‘Deepwater Horizon Oil Split’ of April 2010 resulted in negative public attention of the oil
company, British Petroleum (BP). During three months oil was continuously spilling into the Gulf of
Mexico. The enormous environmental damage due to BP’s negligence was widely described in the
worldwide media. Besides companies’ environmental issues, social consequences and social
responsibility also face attention of the public. The public attention to social issues is reflected in the
scandal of the British newspaper ‘News of the World’. The newspaper was suspected of illegally
monitoring private phone calls. This scandal was widely described in the media. The associated negative
attention about ‘News of the World’ made the owner of the newspaper decide to immediately abolish
the newspaper.
The rise of attention for environmental and social related impact is reflected in increasing attention for
Corporate Social Responsibility (CSR). Besides the society, companies also became more aware of their
environmental and social side. The increased awareness of environmental and social impact results in
the implementation of CSR activities within a company. CSR activities are implemented to contribute to
the economic performances of the company and to benefit society. In a CSR report the CSR
performances are summarized, when the CSR report is disclosed stakeholders are provided with more
transparency.
Since the early nineties a lot of research has been done on the topic of CSR. The impact of CSR is mainly
examined on the financial performances of the company. The study of Margolis and Walsh (2003)
analyzed the outcomes of 127 prior studies and found a positive relation between CSR performances
and financial performances. Wood (2010) argued that the relation between CSR performances and
financial performances is already well established and that CSR research should be more focused on
society and stakeholders. Where the studies of Margolis et al. (2003) and Wood (2010) investigated the
CSR performances, this paper investigates the CSR reporting. In this paper the impact of CSR reporting is
examined, the quality of CSR performance is not taken into consideration, but the quality of the CSR
report is.
The quality of a CSR report benefits the company’s stakeholders. When a CSR report is disclosed,
stakeholders acquire CSR information of the company. If the CSR report is of high quality, stakeholders
are provided with reliable CSR information. This reliable information increases the transparency. The
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stakeholders’ impression of the company changes due to the provided information. In this paper the
impact of CSR reporting quality on the reputation is examined. This reputation is the impression of a
company of all stakeholders together. The impression of stakeholders of a company is influenced by CSR
information.
Existing studies used the term public sentiment, to investigate stakeholders’ impression of a company.
In this paper reputation is used, to investigate stakeholders’ impression. Reputation is a more direct
term to examine stakeholders’ impression about a company. In this paper no distinction is being made
between public sentiment of existing studies and reputation of this paper.
1.1 Research question and research method
The research question of this paper is:
What is the impact of Corporate Social Responsibility reporting on reputation?
To answer the research question, different CSR related topics are investigated in advance. First the
definition of CSR should be defined. Also the characteristics of CSR reporting should be investigated. The
positive accounting theory provides theories which predicts and explains CSR. Description of the agency
theory, information asymmetry, legitimacy theory and stakeholder theory are provided to investigate
incentives of CSR and CSR reporting. To implement CSR into the company, the company should go
through different stages, these different stages are described. Finally, the investigated influence of CSR
reporting on reputation from prior research is described.
The research question is answered by empirical research. The impact of CSR reporting is measured with
CSR reporting quality. The CSR report quality is observed from the CSR report level provided by the
Global Reporting Initiative (GRI) Report List. This CSR report level indicates the degree of conformity
with GRI reporting guidelines of the CSR report. The application level is determined for CSR reports
which are voluntary submitted in the GRI report list. The used proxy for reputation is the reputation
index. This index is based on nine components and is yearly compiled. The CSR report is disclosed after
the reported year and influences the reputation of the year after the reported year. In the reputation
index database, reputation indices from 2006 are available, therefore this paper uses the CSR reporting
time period 2005 up till and including 2009. The research question is answered by the main hypothesis
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and sub hypotheses. These hypotheses are tested with a regression and a correlation. The hypotheses
are:
Main hypothesis:
CSR reporting quality increases the reputation of a company.
Sub hypotheses:
The relationship between CSR reporting quality and the reputation is positively influenced by
larger companies.
The relationship between CSR reporting quality and the reputation is positively influenced by
better financial performances.
The relationship between CSR reporting quality and the reputation is positively influenced by
higher general selling and administrative expenses to sales.
The relationship between CSR reporting quality and the reputation is influenced by regions of
companies.
The relationship between CSR reporting quality and the reputation is influenced by industries
of companies.
Companies for which all relevant data were available are included in the sample. For the year 2005 up
till and including 2009; 85, 106, 138, 167 and 175 respectively data points were available. The years are
individually tested, otherwise the results will be biased. The influence of CSR reporting quality on
reputation is tested by the correlation and the regression of the reputation index and the CSR report
level.
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1.2 Relevance
The investigated relation between CSR reporting quality and reputation provides benefits for the
scientific world, companies and society. Below the relevance for scientific world, companies and society
is explained. In the study of Clarkson, Hua Fang, Li and Richardson (2010) a positive relation is found
between CSR reporting and public sentiment. But in this study, public sentiment is measured with the
Janis Fadner coefficient. This coefficient is based on the amount of negative and positive
environmentally and socially related articles. The Janis Fadner coefficient is not the most reliable
measurement to investigate the public sentiment. This coefficient suggests that companies with equal
amounts of negative and positive articles have the same public sentiment. The study of Clarkson et al.
(2010) takes the influence of CSR reporting into consideration but the studies of Brown and Dacin (1997)
and Ittner et al. (1998) take the influence of CSR on public sentiment into consideration. These studies
investigate the relation between CSR and public sentiment with a field study. The field study evaluates
products based on the customer satisfaction. Product evaluations by (potential) customers’ satisfaction
levels are no exact measurements to investigate the public sentiment. It is hard to accurately evaluate
services of companies. Some companies producing more than one product, when one product is
evaluated not a right representation is provided of the company.
The scientific world also benefits from the investigated relation between CSR quality reporting and
reputation because of the lack of CSR research which is focused on stakeholder and society. From this
paper, society benefits afford, there is investigated if CSR reporting influence the reputation. An
investigation is performed, where the reputation is dependent on. When no relationship is found,
society does not observe the CSR reporting quality. This paper is also of relevance for companies
because it researches if CSR reporting quality leads to an improvement of a company’s reputation. If
evidence is found for a positive relation, companies benefit from providing high quality CSR reports. If
no evidence is found, companies can change their way of CSR reporting to achieve better results with
their CSR disclosure. Investigating the relation between CSR reporting quality and reputation is therefore
beneficial for society.
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1.3 Structure
This paper is outlined as follows, in the second chapter the theoretical background of CSR reporting is
discussed. Disclosures in general, the definition of CSR and the relation of CSR with the positive
accounting theory are described. In the third chapter the literature review is provided. Also the
incentives and impacts of CSR and CSR reporting are presented. The hypotheses are introduced in
chapter four. The methodology, which is used to test the hypotheses, is described in chapter five.
Methodology, statistical research and data are part of chapter five. In chapter six the analytical results
are presented, these results are composed of the descriptive and statistical results. Finally in chapter
seven, the conclusion is stated.
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Chapter 2 Theoretical Background
To provide a complete understanding of CSR reporting, in this chapter a theoretical background is given
about communication information. This chapter starts with describing, different types of communicating
information, financial disclosures and voluntary disclosures are introduced. Thereafter CSR and CSR
reporting are discussed. The definition of CSR is explained, the CSR report and the guidelines for
providing a CSR report are discussed. The final part of this chapter explains the positive accounting
theory and the relation with CSR reporting.
2.1 Disclosures
A disclosure communicates company’s information, the disclosure is provided by the company. Rules
and regulation exist to provide all obligated information. Companies should make required information
publically available. The financial disclosure is a well known mandatory disclosure. Also voluntary
disclosures exist, in voluntary disclosures information is provided which is, next to mandatory disclosure,
not obligated to communicate. First, a short description is given of the financial disclosures, followed
with a description of voluntary disclosures. This description gives a background for understanding the
CSR report disclosures.
2.1.1 Financial disclosure
Companies communicate information in different ways, these announcements are called disclosures.
The most common known disclosure is the financial annual report. In these disclosures, information is
provided about past financial performances and the current financial position of the company. In the
financial report the profit and loss account, balance sheet and cash flow statement are included. Also
other important information for users should be incorporated in a financial report. Financial disclosures
provide useful information to investors and other stakeholders, based on the disclosed information
investors and stakeholders make decisions. Financial reports are valuable for investors, this associated in
the studies of Kothari (2001), Louhichi (2008) and Su (2003). In these studies evidence is found that
financial reports affect stock price reactions. The reaction of investors can be observed due to the
changes in stock prices.
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Specific requirements exist for the financial reporting of listed companies. All listed companies are
required to make the financial report publically available. These listed companies have a big influence on
the society, so the disclosures should be free from errors and fraud. Therefore the financial reports
should be audited by a Certified Public Account (CPA) firm. Providing a financial report is the
responsibility of company’s management. Management is primarily responsible for the information
provided in the report. The financial report should be in conformity with standards and regulations. The
General Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards
(IFRS) are common used standards. For GAAP different country versions exist. The IFRS services a
broader public, this reporting standards is applied in an international setting.
2.1.2 Voluntary disclosure
Management is able to choose, to disclose more information than is required. The non mandatory
disclosed information is called voluntary disclosures. Mandatory disclosed information is imposed by
laws and regulations. But no laws and regulations exist for providing voluntary disclosures. When on a
voluntary base information becomes available, investors are provided with additional information, this
will lead to improved decision making by investors. Also companies can distinguish themselves from
other companies, when providing voluntary information. Different forms of voluntary disclosures exist,
examples are: conference calls, press releases, interviews and sustainability or CSR reports.
2.1.4 Summary disclosures
Companies communicate information to stakeholders by disclosures. In a financial disclosure required
information is provided. For this required information rules and regulations exist. Voluntary disclosure is
a disclosure, that communicates non mandatory information and no rules and regulation exist for these
provisions
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2.2 Corporate Social Responsibility
The subject of this thesis is to investigate the impact of CSR reporting. Before investigating this impact,
first the definition of CSR and CSR reporting should be clear. In a CSR report the performance of the CSR
strategy is communicated. First the definition of CSR is provided, this is followed with an introduction of
CSR reporting. Besides that CSR reporting is a voluntary disclosure, guidelines exist for providing a
report. The guidelines of CSR reporting are provided in the third part of this paragraph.
2.2.1 Definition of Corporate Social Responsibility
Companies which implement CSR strategy into the organization, put attention to environmental and
social activities. When a company implements CSR strategy into the organization, a switch is made in the
focus of the company. Not only the financial performances are important, but also the environmental
and social performances face attention. These companies are concerned about their negative influences.
Many CSR definitions exist, one of the definitions is coming from the World Business Council for
Sustainable Development (WBCSD). This is a platform developed by 200 companies, out of 30 countries.
The WBCSD deals with business and sustainable development, they help companies exploring a new CSR
strategy in the company. Also sharing knowledge and experiences are important purposes of the
WBCSD. Their definition of CSR is:
“The continuing commitment by business to behave ethically and contribute to economic development
while improving the quality of life of the workforce and their families as well as of the local community
and society at large.”
A stricter explanation of CSR is provided by Naylor (1999) and used by Douglas, Doris and Johnson
(2004). This definition is more in line with WBCSD, where CSR is defined as a continuously commitment.
The stricter definition of Naylor (1999) is:
“The obligation of managers to choose and act in ways that benefit both the interest of the organization
and those of society as a whole.”
CSR is makes use of activities, different activities exist for different companies. For example,
manufacturing companies that use for production natural materials can implement CSR activities. One of
the goals of their CSR strategy can be, lowering the amount of used natural materials by setting
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maximum levels of use. Minimizing the pollution rate is a well know CSR activity too. The social side
activities of CSR are, for example, related to providing sponsorships to foundations. The Dutch bank
Rabobank provides much sponsorships to sport and cultural organizations.1 Companies have also the
possibility to implement CSR activities which focus more on the intern side of the company. Examples of
intern CSR activities are, stimulating of employees to go by bike to office and serving healthy food in the
canteen. The health of employees is an important factor for companies, healthy employees are better
performers (Biotech Week, 2004).
Above some examples are given of CSR activities, these CSR activities leads to the CSR performances or
outcomes of the CSR strategy. A CSR strategy includes many CSR activities, the CSR activities all together
have the purpose of reaching a final goal. The outcomes or performances of CSR activities are corporate
social performance (CSP). Wood (2010) provides a framework which made the distinction clear between
CSP and CSR. Following the study of Wood (2010) there is claimed that CSP is more focused on the
outcomes and impacts of performances. The CSP is defined by the principles of CSR, the CSR strategy
sets out the expected performances. Wood (2010) implies that, CSP result from CSR and that CSP proves
from social responsiveness. She identified the social responsiveness as a process where environmental
scanning, stakeholder management and public affairs management are incorporated. This all implies
that, CSP is the outcome of the CSR activities.
In the study of Wood (2010) there is made use of CSR, when measuring the corporate social
performances. Before, already was mentioned that Wood (2010) sees CSP as the outcome of CSR. In this
framework CSR is defined on three principles: legitimacy, public responsibility and managerial discretion.
In this study a definition about the legitimacy theory is given: “Businesses that abuse the power society
grants them will lose that power.” A company obtained power, achieved from society. The company
uses this power in their daily production and decision making. If a company harms the environment of
society due to the production or decision making, they misuse their power. The society will judged the
company in a negative way, the company will obtain less power finally. The definition of the public
responsibility is:”Businesses are responsible for outcomes related to their primary and secondary areas
of involvement with society.” This definition implies that, the company is full responsible for the
environmental and social performances. Not only the positive performances are under company’s
responsibility but also the negative performances are under company’s responsibility. The managerial
discretion is defined by Wood (2010) as: “Managers and other employees are moral actors and have a
1 http://www.rabobank.nl/particulieren/servicemenu/sponsoring/sponsorfilosofie/ accesed on 14 March 2011
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duty to exercise discretion toward socially responsible, ethical outcomes.” This implies managers and
other employees should act in the way the CSR strategy prescribes. This extended framework with the
three included principles, designed by Wood (2010), suggests that CSR is driven by managers and
employees, towards the company’s performances which benefit society. When a company abuses
power from society, the company will be harmed in losing power.
Companies are free to choose whether or not to implement a CSR strategy into the organization. No
mandatory requirements exist for implementing a CSR strategy. CSR is a strategy that provides benefits
not only for the company, but for the society too. When implementing CSR, the company acts in their
own preferences (for example, high financial performances) and also takes the preference of society
into account (for example, reducing the company’s pollution).
2.2.2 Developments in Corporate Social Responsibility
In the previous decades the use of CSR was rising. This is mainly due to the rise in awareness about
environmental and social issues (Quaak, Aalbers and Goedee , 2006 and Kakabadse, Kakabadse and Lee-
Davies, 2006). The focus of companies on environmental and social issues has changed over time. In the
first decades of the twentieth century a little start of CSR was already been made. Companies became
more aware of their social side, attention to housing of employees and health security was growing.
Later on, the government takes the responsibility for this social guidance. The consequences of the
economic growth became visible in the seventies of the last century, big economic growth was harming
the environment too much. There was coming more pressure on the social and environment
involvement of the company. The last decades continues globalization leads to a growing change in the
social and environmental problems, from local perspective to global perspective. Companies now, have
to solve problems on three different dimensions; economic, social and environmental. Nowadays,
companies can solve these problems by the triple P-strategy. (Quaak et al., 2006)
2.2.3 Corporate Social Responsibility reporting
Performances related to CSR can be communicated by several CSR disclosures. One of these CSR
disclosures is the CSR report. In a CSR report the CSR performances of underlying period are
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summarized. The CSP are communicated in this CSR report. In the study of Dawkins and Stewart (2003)
is prescribed that companies should disclose CSR information. In this study the demand of CSR reporting
was investigated. The demand to provide CSR reporting was represented by 86 percent of the British
public. But what contains the concept of CSR reporting? Different descriptions exist for this concept,
different definitions of CSR reporting are discussed.
In the study of Sutantoputra (2009) companies are assessed on the level of CSR reporting, when
providing a rating of the social performances of the selected companies. The assessment of the CSR
reports is based on the GRI framework. In this study there is made use of the following definition of CSR
reporting:
“The process of providing information designed to discharge social accountability”
In another study of Douglas et al. (2004) the CSR reports of financial institutions from Ireland are
analyzed. In this study is argued that CSR reporting is a way to provide stakeholders information about
social performances of the company. In this study of Doris et al. (2004) corporate social reporting is seen
as a tool for developing a positive image among the stakeholders.
Sutantoputra (2009) notice that CSR performances are also communicated in annual reports instead of a
standalone CSR report. But a rising trend is observed in providing CSR information, a growing rate of CSR
disclosures is disclosed in a standalone CSR report. The CSR reporting behavior is different among
countries. Douglas et al. (2004) argued that these differences are based on the government policies,
cultural differences and stage of the economical development. They claim too, the quality of CSR report
is not related to the volume of disclosed information.
2.2.4 Corporate Social Responsibility reporting guidelines
Since a CSR report is a voluntary disclosure no laws and regulations exist when developing the report.
But when no rules and regulations exist to provide a CSR report, too much freedom occurs when
formatting a report. This can follow in a diversity of high and low quality levels among CSR reports. Low
quality level reports provide less transparent and less reliable information then high quality reports. To
provide high quality CSR reports, a framework for developing CSR reports should be constructed. A
framework with guidelines to establish high quality CSR reports provides CSR reports which achieve a
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satisfied quality level. Below, descriptions and tools are given about guidelines, provided by the Global
Reporting Initiative (GRI).
The GRI is an important institute for the development of CSR reporting. They provide a framework for
sustainability reporting. This framework is based on stakeholders’ perceptions. Principles and objectives
underline the GRI framework. When managers follow the framework benefits arise for the organization
it selves and the users of the report. The GRI framework is global, the most used framework for social
reports. On their website they refer to their mission:
“To create conditions for the transparent and reliable exchange of sustainability information through the
development and continuous improvement of the GRI Sustainability Reporting Framework.” 2
The provided framework is developed for every company independent of size and sector characteristics
of companies. The principles guarantee qualified provided information. The principles include
standardizations of the information disclosures. 3Different reporting levels are specified by the GRI
framework. The application levels are A, B and C, these levels measures the extent of coverage of the
GRI framework. This level framework provides benefits for report users and makers. This level
framework provides incentives for report makers, to increase their reporting skills.4
Following the objectives of GRI, the CSR report should measure and publish the company’s
responsibilities to stakeholders about sustainable growing performance. These reports can be used for
different purposes:
Comparing and assessing the sustainable performance of legislation, official norms, codes,
performance standardization and voluntary initiatives.
Assessing how the company is influenced by and influencing the expectations of sustainable
development.
Comparing different performance of a company and the difference between companies on a
long turn.
2 http://www.globalreporting.org/AboutGRI/ accessed on 15 March 20113 Richtlijnen voor duurzaamheidsverslaggeving, 2000-2006 GRI, version 3.04 http://www.globalreporting.org/NR/rdonlyres/D2BC0DF8-FF2C-4BAB-B2B4-27DA868C2A5F/5683/G3_Guidelines_English.pdf accessed on 15 March 2011
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2.2.5 Summary Corporate Social Responsibility
Several definitions exist CSR, the CSR definitions describe that CSR covers responsibility of
environmental and social side, which benefits the company and society. When a CSR strategy is
implemented in the company, CSR activities support the goal of CSR strategy. The outcome of CSR is
CSP.
When the CSR strategy is implemented in the organization, managers have the opportunity to
communicate the CSR information in a CSR report. When the CSR information is disclosed, stakeholders
are provided with more information.
No laws and regulation exist to prove a CSR report. But the GRI provides guidelines for developing a
report. This framework provides benefits for users and makers of CSR report.
2.3 Positive Accounting Theory
The positive accounting theory is important in disclosing voluntary information. The positive accounting
theory is useful to specify the reasons of disclosing a CSR report. The positive accounting theory includes
theories which explains and predicts circumstances. As argued by Deegan and Unerman (2006) the
positive accounting theory focuses on the relationship between stakeholders and the company. Deegan
et al. (2006) explains that positive accounting theory is used to assists this relationship. The agency
problem, information asymmetry, legitimacy theory and stakeholder theory are explained in this
paragraph. First, the information asymmetry and the agency problem are introduced. The information
asymmetry is deducted from the agency problem. The legitimacy theory and stakeholder theory are
explained as well. The incentives of CSR reporting which are based on the positive accounting theories
are more discussed in next chapter.
2.3.1 Agency theory
The agency problem arises among stakeholders and management. This problem is designed by Jensen
and Meckling (1976). The agency problem is driven by self interest. Stakeholders provide resources to
the company, for example, shareholders or investors provide financial resources and the environment
provide environmental resources to the company (fresh air and natural production materials). The
resources provide by environment are represented by environmental foundations and government
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Management (insiders) make decisions based on their self interest. But in the decisions making,
concerns of stakeholders (outsiders) are involved. Because stakeholders provide resources to the
company. Stakeholders are defined by Freeman and Reed (1983) as:
“Any identifiable group or individual who can affect the achievement of an organization’s objectives, or is
affected by the achievement of an organization’s objectives.”
Different stakeholder groups have different concerns of the company. Environmental foundations have
environmental concerns. For example, Environmental foundations do not appreciate management
decisions to open a new polluting factory near a natural area. The environmental foundation is affected
by the decision making, because it looks after the environment. But the environmental foundation has
no opportunity to decide whether or not building the new factory. Management benefits from the new
factory, if the new factory results in higher profits, this higher profits drives management to decide to
build the new factory. Managers make decision based on their self interested incentives. Management
and stakeholders differs in their incentives. In the decision of new projects, resources of stakeholders
are involved. But this stakeholders does not always play an active role in decision making, stakeholders
are not able to make decisions on their provided resources (employees are not able to make decision
which insure their work). Jensen et al. (1976) argue that when managers and stakeholders do not own
the same incentives and when stakeholders are not able to monitor the management’s behavior, the
agency problem occurs. (Healy and Palepu, 2000)
The agency problem arises due to different incentives among management and stakeholders. A lot of
different stakeholders exist, with different concerns. Investors benefit from high company returns,
although environmental foundations are more concerned about the negative damage of the company
and labor unions wants to retain the amount of work as before. All this different concerns leads to
different incentives. But outcomes exist to solve issues, about conflicting incentives. Healy and Palepu
(2000) offer ways to decrease the agency problem. The manners that Healy et al. (2000) are described
are: contracting, disclosing, corporate governance, information intermediaries and corporate control
contest. Requirements can be made about issues. Healy et al. (2000) argue that compensation
requirements of managements and rights and obligations of different stakeholders decrease the agency
problem. Contracts should be made, to describe the requirements. For proving if management honors
the requirements in the contract, disclosures are important. Healy et al. (2000) argue if information is
disclosed, stakeholders have the opportunity to monitor if management meets the contractual
agreements. Also the board of directors can influence the agency problem, which is structured in the
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corporate governance of the company. Following Healy et al. (2000), this board has the aim to control
management, they make sure if management acts properly. Information intermediaries as rating
agencies and financial analysts will probably detect misuse of resources and funds which are provided by
investors. When detection by rating agency or financial analyst occurs, the reputation of management
will be harmed and the market values the company lower. Healy et al. (2000) investigate that the threat
of market undervaluation reduces the incentive of management to make decisions in favor of their self.
Finally the threat of taking over company’s stocks by competitors reduces the agency problem between
investors and managers. If investors are not satisfied, they have the opportunity to sell stocks to
competitors. This threat is called the corporate control contest. (Healy et al., 2000)
Healy et al. (2000) argue that whether contracting, disclosure, corporate governance, information
intermediaries and corporate control contest eliminate agency problem is questionable. Economical and
institutional factors are the reason for the questionable effectiveness. These economical and
institutional factors are, for example, the ability to develop requirements in contracts. Also Healy et al.
(2000) argue that it is possible that the board of directors can own the same incentives as management.
The writers also state that when the corporate control market is social and friendly, competitors are less
motivated to take over the stocks. These economical and institutional factors have influences on the
effectiveness of the solutions to solve the agency problem. Economical and institutional factors are
continuously changing, so solutions for agency problems should be continuously be adjusted.
As Healy et al. (2000) argue that the provided solutions of the agency problem are questionable, this
implies not, that the provided solutions of the agency problem are not useful. At least the solutions
separate will face a too less impact on the agency problem. But when taken the solutions together, the
effect will be larger. Voluntary disclosures and also CSR reporting are one of the solutions and can be
seen as a tool for reducing the agency problem when also the other solutions are taken into
considerations. The problem exists due to the fact that managers and investors have different incentives
with the company. Also both parties act in their own interest. When disclosing information,
management behavior can be monitored, for example CSR report disclosure monitored management on
their CSR performances. Disclosures provide more openness in the behavior of management. This
implies a way to monitor acts and decisions made by management. Now it’s possible for stakeholders to
control and assess management behavior. When stakeholders disapprove management behavior, it will
probably result in an undervaluation of the company. The undervaluation is harming the company,
therefore management tries to make a good reputation, voluntary disclosures can be used as a tool for
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achieving this reputation. This result of voluntary disclosure, the possibility that investors judge
management has the result of more openness.
2.3.2 Information asymmetry
The explanation of information asymmetry is based on the difference in information hold by
stakeholders (outsiders) and management (insiders) of the company. Management makes decisions in
favor of continuing the company. For making accurate decisions, management is completely informed.
Although stakeholders do not own all information. The company is dependent on stakeholders.
Stakeholders provide resources to the company.
Before, the agency problem was explained. The information asymmetry can be seen as a result of the
agency problem. The agency problem is driven by self interest. Management and stakeholders make
decisions based on this self interest. Providing information in a disclosure is one of these decisions.
Provided Information is used in decision making, when management influences the amount of provide
information they have the possibility to influence stakeholders decisions. Management sometimes
benefits from disclosing less information. When management provides less information, the information
asymmetry is high.
The information asymmetry shows the openness of the company. When a company is full open,
management and stakeholders owns the same amount of information. But in practice a distinction in
information hold by management and stakeholders exist. This difference in holding information is called
the information asymmetry. Healy et al. (2000) argue that in the information asymmetry risk is involved.
Stakeholders make decisions based on the provided information. When relevant information is not
provided to stakeholders, the decision of stakeholders can be different. Stakeholders want receive as
much information as possible, to make optimal decisions. When management provides all information
the competition status of the company can be affected. (Healy et al., 2000)
Argued by Akerlof (1970) managers bias the provided information in a positive way. When providing
positive information, the company will attract more investors. When management judge less well and
bad information also in a positive way, more investors are attracted. Akerlof (1970) described that this
result in a situation where investors are not able to make a distinction between good and bad
information. Information announcements about good investments are undervalued and the
announcements of bad investments are overvalued. This problem is called the Lemons problem. Akerlof
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(1970) argue the lemon problem will finally leads to a breakdown of the capital market. The lemon
problem arises from the information asymmetry. If no information asymmetry exists, outsiders own all
detailed information and are able to value the information content. If a situation of no information
asymmetry occurs, investments are valued on unbiased information.
The information asymmetry problem and lemon problem can be reduced in different manners. Healy et
al. (2000) explains three different tools for reducing the information asymmetry and lemon problem.
Information intermediaries, optimal contracts and regulation result in a lower information asymmetry.
Ratings agencies and financial analysts, which are information intermediaries, are searching for
information privately owned by management. If information intermediaries make their findings
publically available, the distinction between information hold by managers and outsiders is reduced.
Optimal contracts are also solutions for reducing the information asymmetry. Optimal contracts
incorporate management requirements to disclose optimally all private information. When managers
should announce all private information, more information becomes available for investors. This leads
to a reduction in the information asymmetry. Besides contracts, regulations that require management
to disclose all private information, results in a reduction of the information asymmetry. When
stakeholders own more information, they are more able to measure the difference between good and
bad information. The increase in information hold by stakeholders, results in a reduction of the lemon
problem. (Healy et al., 2000)
Voluntary disclosures and CSR reporting can use as tool to reduce the information asymmetry.
Management can decide to provide voluntary disclosures, the voluntary disclosures will decrease the
distinction in information hold between insiders and outsiders. Voluntary disclosures are announced by
management it selves. No rules and regulation exist that requires management to disclose the provided
information. This negative relation between information asymmetry and voluntary disclosures is
observed in the study of Akhtaruddin and Haron (2010). The information asymmetry was measured with
the agency costs and found evidence that high agency costs are associated with low level of voluntary
disclosures. This result implies that voluntary disclosures reduce the information asymmetry.
2.3.3 Legitimacy theory
The legitimacy theory belongs to the positive accounting theory, the legitimacy theory explains why
management decides to take action in favor of society. For understanding the legitimacy theory it is
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important to know, that a company operates in the society. And that the company is judged by the
society on their performances. A detailed explanation of the legitimacy theory is provided by Deegan
and Unerman (2006):
“Legitimacy theory relies upon the notion that there is a ‘social contract’ between the organization in
question and the society in which it operates.”
Deegan and Unerman (2006) explained the social contract concept by:
“… a concept is used to represent the multitude of implicit and explicit expectations that society has
about how the organization should conducts its operations. “
This explanation implies that, the legitimacy theory is driven by the public expectation of companies
about their operations. This expectation is not only based on the production process, but also on the
performances of corporate governance and other processes which assist the operations of the company.
Companies obtain legitimacy from the public, if they are performing in accordance of public. In the study
of Lightstone and Driscoll (2008), where companies behavior is tested to obtain legitimacy. In this study
Canadian companies were investigated on ethics and legitimacy. They found that companies are using
ethical language to inform stakeholders. When bad news was communicated also positive information
was provided. The authors suggest that this positive information misleads the stakeholders about the
bad news. When stakeholders are provided with bad news and positive information, stakeholders make
more positively expectations about the company than when only bad news is communicated. This is in
conformity that companies will achieve legitimacy from the public. When only the single bad
information was announced, the public will value the company at a lower level. But when also positive
news is announced, the valuation of the public improves. From the disclosure of this positive news, the
company is judged legitimate by the public.
Lui and Taylor (2008) found evidence that management achieves legitimacy from the society. In their
research they investigate the voluntary disclosures of executives’ remuneration in Australia between
2003 and 2004. Starting in 2002, scandals about corporate governance were detected. This scandals
result in a rising demand of stakeholders to provide more information about executives’ remuneration.
In the study of Lui et al. (2008) was investigated that management legitimated the company, by
providing more detailed information about executives’ remuneration. These details were voluntary
provided in the annual report. This study implies that companies are driven by the expectations of the
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public to legitimate their operations. After disclosing detailed information about executives’
remuneration, the company achieves from the society the ‘license’ to operate.
Cho and Patten (2007) found evidence that environmental disclosures are used as a tool for legitimacy.
This study is based on companies which are separated out in different groups, the environmental
sensitive and non-environmental sensitive companies and good and bad environmental performers. In
this study is concludes that companies which are bad environmental performers are disclosing more
environmental information. The findings that environmental disclosures is a tool for legitimacy and that
bad environmental performers provide a higher level of environmental information is consistent with
Dowling and Pfeffer (1975). In the study of Dowling et al. (1975) three tools are meant to obtain
legitimacy, these tools are:
“The organization can adapt its output, goals and methods of operation to conform to prevailing
definitions of legitimacy.”
“The organization can attempt, through communication, to alter the definition of social
legitimacy so that it conforms to the organization’s present practices, output, and values.”
“The organization can attempt, again through communication, to become identified with
symbols, values, or institutions which have a strong base of social legitimacy.”
This implies that the findings of Cho et al. (2007) are in consistent with the second tool of Dowling et al.
(1975). Poor environmental performers are using a higher amount of environmental disclosures. The
poor environmental performance companies need more communication to obtain a legitimacy level and
therefore these companies communicate more environmental related information.
This described studies of Lightstone et al. (2008), Lui et al. (2008), Cho and Patten (2007) and Dowling et
al. (1975) provide the incentives to disclose voluntary information. Because public provide legitimacy to
the company. The company should act in a way that they deserve the legitimacy. Voluntary disclosures
are a way to become legitimate. Argued by Dowling et al. (1975), through communicating, the company
can define the taken legitimacy operations. The public observes the information from the voluntary
disclosure and provides legitimacy.
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2.3.4 Stakeholder theory
The stakeholder theory has some similarities with the legitimacy theory. For understanding both
theories there should be taken into account that the company operates in the entire society. The
company has to deal with different stakeholder powers concerns. Argued by Deegan and Unerman
(2006), the stakeholder theory can be distinguished into the ethical branch and the managerial branch.
From an ethical point of view, all stakeholders should be treated equal. All stakeholders have the same
rights and no difference in stakeholder power should exist. The rights of the stakeholders should not be
violated. This result that all stakeholders should be informed about the impact of the company on their
individual concerns. (Deegan et al., 2006)
The managerial branch of stakeholder theory emphasizes different stakeholder groups. The different
groups should be managed in different ways, this suggest that not all stakeholders should be treated
equally. Demands of powerful stakeholders are rather meet than less powerful stakeholders. This is
conformity with the study of Ullman (1985) which argues that stakeholders’ power to influence the
company is dependent on the stakeholders’ possibility to control over required resources of the
company. This implies that stakeholders which have much power over the company also have more
influences on the company.
In a recent study of Huang et al. (2010) the drivers for environmental disclosures are investigated in
Taiwan. There is made a distinction into internal and external stakeholders. There is found evidence
that external stakeholders have a larger power in environmental disclosures. Internal stakeholders
provide additional pressure to the environmental disclosure. Huang and Kung (2010) argue that larger
companies and companies that in the past harmed the environment observe more pressure from
government to disclose environmental information. They suggest companies that harmed the
environment in the past, should improve their legitimacy. In this study is also claimed that larger
companies facing more impact of stakeholders, on environmental disclosures. The final conclusion of
this study is that, stakeholders put an important pressure on management to disclose environmental
related information.
2.3.5 Summary Voluntary Disclosures and Positive Accounting Theory
In this paragraph the positive accounting theory is explained. The positive accounting theory explains
and predicts company’s behavior. The agency problem explains that management and stakeholders
behave out of their self interest incentives. This problem predicts that managers and stakeholders make
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decisions in favor of their self interest. A voluntary disclosure is a tool to reduce the agency problem. In
the disclosed information, the behavior of management is visible. The information asymmetry is also
reduced by voluntary disclosures. The level of information asymmetry reflects the gap between
information of the company hold by managers and stakeholders. After a disclosure, more information
becomes available to stakeholders, this reduces the information asymmetry.
The legitimacy theory explains that company made decisions to favor society. Companies obtain power
from society, when they abuse this they will lose power. So this implies the fact that companies made
decision to legitimate each self. CSR disclosure is used to achieve legitimacy, a CSR report provides more
openness in the CSR activities of the company. The society will judge the company in a positive way,
when CSR information is provided.
At least the stakeholder theory explains that company is influenced by some stakeholders. Two types of
branch of the stakeholder theory exist. The ethical branch explains that all stakeholders should be
treated equal independent of their power. But the managerial branch explains that differences exist in
the power of stakeholders to influence the company. But the main message of the stakeholder theory is
that different stakeholder groups have different demands. The company pays attention to all different
demands of stakeholders. Every company has stakeholders which are interested in the CSR
performances. The demand of these stakeholders is met when, a CSR report is disclosed with
information about CSR performances.
Chapter 3 Literature Review
Before a CSR report is provided, managers first choose to implement a CSR strategy in the company.
When the strategy is operative, the CSR performances and other relevant CSR information can be
summarized in a CSR report. By the provided CSR report, stakeholders get an inside view of the related
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CSR activities and results. But why do managers choose to implement a CSR strategy and to disclose a
CSR report? The reasons of providing information about CSR activities and results are important to
know. Also the impact of CSR reporting is interesting. Using prior research, the incentives and impacts of
CSR reporting is discussed in this chapter.
In the first paragraph the incentives of management to implement CSR in the organization are given. The
remainder of the chapter provides an overview of existing literature, related to the impact of CSR
disclosures. First the impact on the forecast error is discussed. Afterwards, literature related to the
impact on the public sentiment is described. Finally, the influences on the financial performances are
discussed.
3.1 Incentives of Corporate Social Responsibility strategy and reporting
A CSR strategy leads to another focus of the company, the triple P-strategy has an important role in
here. CSR can be a way for implementing the triple P-strategy into the organization. Stakeholders are
important parties for the implementation of the CSR strategy, this is discussed in the part about the
incentives of the CSR strategy implementation. The CSR reporting incentives are also discussed in this
part. The final part of this paragraph provides a description of the implementation of the CSR strategy
and the CSR report.
3.1.1 Corporate Social Responsibility strategy and reporting incentives
The triple P-strategy is a strategy performed by commercial companies, to have more focus on the social
and environmental sides of the firm. This triple-P strategy is an aspect of CSR. The triple-P is coming
from, People, Planet, Profit. Quaak et al. (2006) argued that this triple-P strategy is value creating by the
company, not only value creating in terms of profit but value creating for society and environment too.
This value creating comes from the possibility that, a cost reduction can occur when focusing on the
society and the environment, but this cost reduction is not necessary the case. Conceivable cost
reduction is decreases in potential litigation and pollution costs. More practical cost reduction is savings
due to efficient paper use. The view of the company how finally the triple P-strategy should be
implemented in the organization is dependent on stakeholders. All stakeholders have different concerns
with the company (Quaak et al., 2006).
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For providing more transparency, companies should answer the demand of CSR related information
from stakeholders. Dawkins et al. (2003) suggest that stakeholders are asking for more openness
regarding CSR related performances. The company is able to inform stakeholders on different ways. The
CSR report is one way, to make CSR information available for public. The CSR report improves the
transparency of the company (Quaak et al., 2006). The CSR report is part of the CSR strategy.
Determined on the CSR strategy, management decides whether or not to provide CSR information in a
CSR report.
As before already was mentioned, stakeholders put pressure on the company. The CSR strategy (and
thus the CSR reporting) is influenced by stakeholders. But not only stakeholders have an impact on the
CSR strategy. In the study of Quaak et al. (2006) different influences on CSR strategy are summarized.
There is made a distinction between internal and external influences. Internal influences are coming
from inside the company. Internal influences are further divided into actors and factors. Actors are
person or people which are organized in groups within the company. This persons or groups have the
power to determine and influence the CSR strategy. The internal factors are not person or organized
person, but are elements within the company and have an effect on the CSR strategy. Outside influences
are only coming from people or organized people, no factors from outside influences the CSR strategy.
These people can make use of their power to influence managements’ decisions about CSR strategy.
Since CSR reporting is part of the CSR strategy, internal and external actors and internal factors are
influencing CSR reporting. Below in table 1 the internal and external influences are stated.
Table 1: Internal and external influences on CSR strategy
Internal External
Actors InvestorsShareholders
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Consumers / CitizensCustomer
Management SuppliersEmployees Non- government Organizations
NeighborhoodMediaGovernmentCompetition
FactorsCostsComplexityKnowledge
The level of influences of actors and factors can be different for each company, the level of power of the
actors and factors are different. Companies which operate in rural areas are facing a lower level of
neighborhood power, compared to companies in urban areas. Expected from the stakeholder theory,
companies benefit if they satisfy CSR reporting demands of stakeholders. Stakeholders have the
opportunity to misuse their power, stakeholders are able to put pressure on their demands.
Companies are part of the society, the society and companies are affecting each other. Decision made
by the society has an influence on the company and also decision made by companies influence the
society. This implies society and companies are dependent of each other. The implemented CSR strategy
influences the society as well. Porter and Kramer (2006) called that society and companies should make
decisions based on the shared value. If they taken the shared value into account, the decision adds value
for both parties. Porter et al. (2006) separate out the two types of linkages: inside-out linkages and the
outside-in linkage. The inside-out linkage represent the influence of the company on the society, an
example is the pollution effects of the producing. The outside-in linkage represents the effect of the
society on the company. An example of the outside-in linkage is incentives provided by government to
invest in social projects. For developing a CSR strategy into the company, the company should
implement the inside-out and outside-in linkages in the CSR strategy. Porter et al. (2006) claim that the
implementation of inside-out and outside-in linkages supports the shared value. When allow for the
dependences of company and society, the company is able to design a CSR strategy with benefits for
both parties.
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When the CSR strategy is implemented in the company, the company can decide to provide a CSR
report. In the CSR report the CSR performances are showed, also future CSR related information can be
incorporated in the CSR report. Since companies are free to choose for communicating CSR information,
the CSR report is a voluntary disclosure. The incentives based on agency theory and information
asymmetry, legitimacy theory and stakeholder theory are capable to explain the incentives of a CSR
report. In paragraph 2.3 the agency theory, information asymmetry, legitimacy theory and stakeholder
theory are explained, in this explanation is already described that these theories are in conformity with
voluntary disclosures.
Healy and Palepu (2001) described incentives to provide voluntary disclosures, based on the positive
accounting theory. These incentives are also applicable for CSR reporting. The capital market incentive
can be linked to a CSR report. The capital market incentive explains that due to the disclosure the
information asymmetry is reduced and this results in a reduction of costs. Managers which decide to
disclose a CSR report, can base this decision on the capital market incentive. For example, in the
provided CSR performances, information is given about the investments in sustainable production. This
reduces the information gap between stakeholders and management and reduces the agency costs. The
cost of equity decreases, investors are more able to expect future pollution and litigation costs.
If a threat undervaluation of the company occurs, managers put more focus on the CSR performances.
The focus on CSR performances reduces the risk of undervaluation. It is imaginable that a company has
bad financial performances due to an economical downturn, but has invested in social education
projects. Social projects are beneficial for the society as a whole, stakeholders value these projects
positive. When company puts attention on the CSR report and if good projects are performed, the
magnitude of the undervaluation is reduced. This is in conformity with the corporate control incentive of
voluntary disclosures of Healy et al. (2000). The legitimacy theory is the driver of this corporate control
incentive. The company wants to receive legitimacy from the society when communicating CSR
performances. The corporate control contest is observed in the findings of Lightstone et al. (2008) they
found that companies communicate bad information together with positive information.
Managers are affected by the performances of the stock prices. CSR performances are quite well judged
by (potential) investors, there is less risk involved when investing in CSR reporting companies, then in
comparison with not CSR reporting companies. The litigation costs are reduced, the company faces a
more open view to investors, due to the reduction in information asymmetry. There is a better view of
the possibility if a third party will litigate the company, when the company harms the society or
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environment. This decrease of litigation costs implies an increase in the future cashflows, which finally
results in an increase of the stock prices. This described stock compensation incentive of Healy et al.
(2001) is also applicable for the CSR reporting incentives. Similar to the control contest incentive, the
stock compensation is based on the legitimacy theory. The stock compensation incentive is not based on
the stakeholder theory because, the demand of providing CSR information comes not from the demand
of stakeholders. But the stock compensation incentive for CSR reporting is also a result of the agency
problem and the information asymmetry.
Also the standalone threat that stakeholders litigate managers is an incentive for the decision of
providing a CSR report. When companies announce more information about the influences on the
environment, stakeholders are more informed about the impact of the company. These CSR
performances can be positive or negative judged by the stakeholder (also dependent on the stakeholder
interest). So managers should be very careful in the decision of providing certain information in a CSR
report, or even providing a CSR report. This is in conformity with the litigation cost incentive of Healy et
al. (2000). This incentive is based on the legitimacy and stakeholder theory. And also the agency
problem is taken into account when CSR reporting decisions are based on the litigation cost incentive.
The management talent signaling incentive of Healy et al. (2000) argues that managers are better judged
if they provided more information. When voluntary CSR performances are announced, it is expectable
that managers are better judged due to the more provided information. This incentive is based on the
incentive that the manager wants to achieve a license to operate. Also when managers disclose a CSR
report based on signaling. They take the agency theory into consideration, the management makes the
CSR reporting decision based on their own interest.
The sixth incentive of Healy et al. (2000), implies a reduction in provided information, this is also
applicable to CSR reporting. For example, a company implements a specific project to improve the
health of employees. The designed health project is unique and no other companies have a comparable
project. This project influences in the first place the quality of work provided by the employees. But also
talented employees are attracted to the company due to the good second working conditions. For the
company its beneficial to do not communicate specific project information about the content, to
stakeholders, it can decrease the competitive position of the company. This proprietary cost incentive
should also be taken into account when managers decide to provide CSR information. The stakeholder
theory is relevant for this proprietary cost incentive, because the decision whether or not to disclose
certain information, is based on the power of stakeholder groups. And also the agency problem is
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important in this incentive, the self interest of managers to keep the information inside the company
should be noticed.
CSR reporting is a voluntary disclosure, companies are not obligated to disclose CSR information. The
above described incentives argue a disclosure of a CSR report. But when incentives exist to provide a
CSR report, the question rises, why CSR reporting is not mandatory. In the study of Rodriquez and
LeMaster (2007) this question is answered. Rodriguez et al. (2007) claimed that CSR reporting should
stay voluntary disclosures. The Security and Exchange Commission (SEC) should not require companies
to disclose CSR reports, CSR reporting increases creditability and transparency (Rodriguez et al., 2007).
When CSR disclosures become required, few gains are reached but this outweighed not the cost of the
requirement.
3.1.2 Implementing Corporate Social Responsibility strategy and report
The development of a CSR strategy is very important, when the strategy is well developed and
implemented, the company achieves benefits. Porter et al. (2006) argue that a chosen CSR strategy
incorporates environmental, social and economical aspects. The environmental, social and economical
aspects are comparable with triple-P strategy. With the chosen strategy the company is able to
differentiate from competitors. An example where the strategy differentiation results in many benefits is
provided by Porter et al. (2006) this is the strategy of the Prius produced by Toyota. Toyota designed a
strategy for the hybrid Prius and these results in a competitive advantage and in well environmental
performance.
To implement a CSR strategy, the company should go through different phases. The whole company is
effected by the CSR strategy, therefore the company should take different phases into account when
implementation a CSR strategy. These different phases are developed by Kabadse et al. (2006). The first
phase is the decision phase, in this phase the knowledge about CSR is important and different
stakeholders concerns. The outcomes of the decision phase are the designed CSR strategy goals. When
the decision for implementing a CSR strategy is completed, the adoption phase will follow. CSR is a
structure that should be implemented in the whole organization. This implies the aim of the adoption
phase, all employees should have the same incentives for the CSR strategy. Kakabadse et al. (2006)
argues that, to make the adoption phase successful there should be a persuasive sub stage included. The
possibility exist, that two or more contrasting incentives are conflicting with each other. To handle these
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conflicts, paradoxes and conflicting priorities should be prepared. Also it is important that through the
company’s activities the CSR message is consistent implemented. Monitoring has the aim to justify if the
CSR message is consistent implemented. This monitoring will give accountability to the CSR
performance. The third phase of implementing CSR strategy in the company is the commitment phase.
Following Kakabadse et al. (2006), all employees should have enough discipline and passion for results
to follow the CSR from initiative to application. This phase suggest there is a will to act. This last phase
has the aim to continuing the CSR strategy in the company. Below in table 2, the different stages are
presented.
Table 2: Different phases that lead to the CSR strategy (Kakabadse et al. 2006)
3.1.5 Summary incentives Corporate Social Responsibility strategy and report
Outside and inside factors and actors have an influence on the implementation of CSR into the
organization. The power of stakeholder influences the impact. The capital market, corporate control,
stock compensation, litigation cost, managers talent signaling and proprietary cost incentive which are
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CSR Decision Phase
CSR Adoption Phase
CSR Commitment Phase
CSR Strategy
based on the general voluntary disclosures, are useful to explain CSR report incentives. The incentives to
provide a CSR report are based on the agency theory, legitimacy theory and the stakeholder theory.
The decision, adoption and commitment phase are important phases for implementing CSR. The
decision and adoption phase influence the implementation of CSR. The commitment phase influences
the going concern of CSR.
3.2 Impacts of Corporate Social Responsibility Report
Companies implement CSR because benefits are expectable from the CSR strategy. This benefits or
incentives of CSR are described in previous paragraph. When CSR performances are disclosed, a reaction
from stakeholders is expectable. Stakeholders’ value providing of additional information. In this
paragraph the impacts of CSR reporting are discussed, based on existing literature. The impacts on the
forecast accuracy are first discussed. The public sentiment or the reputation will be influenced too, this
is described in the second subparagraph. At the end of this paragraph the financial impacts are
discussed. In the summary a table is provided, which summarize the results of impacts from the used
literature.
3.2.1Forecast accuracy
When CSR information becomes available, stakeholders are provided with more information (Dhaliwal,
Radhakrishnan, Tsang and Yang 2010, A). This additional information produces different effects. The
forecast accuracy is one of the variables that are affected by CSR disclosures. First a describing will
follow about expectations of the impact on the forecast accuracy. Thereafter studies are described
which provide evidence on the impact of the forecast accuracy.
CSR disclosures which are provided by management include relevant information for stakeholders. This
additional information adds value to the stakeholders based on the information asymmetry and the
agency problem (Healy et al., 2010). The information asymmetry will be reduced after disclosing CSR
performances. The distinction in information hold by management and stakeholders decreases. The
increase in level of information hold by stakeholders results in a reduction of information asymmetry.
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CSR reporting is provided to all stakeholders, also analysts achieve this CSR information. In CSR reports,
relevant information is stored, which influences future financial performances. Analysts make forecast
based on observed information. When more information is disclosed, analysts achieve more
information, this result in more accurate forecasts. Due to the more provided information, analysts are
able to make fewer errors in the predictions. Therefore there can be expect the forecast error
decreases. (Dhaliwal et al. 2010, A)
CSR information is not directly related to financial performances of the company, but although it is
valuable information for investors and other stakeholders. CSR information is environmentally and
socially related and does not provide direct information about financial performances. The provided
information gives a view in the contribution of the company activities on the society and environment.
The provided information is useful to make expectations about future financial performances. The CSR
report provides information about future costs (pollution and litigation). Analysts are able after the
disclosure of the CSR report, to analyze the company in a more certain way. When less risk is involved in
an analyze, more accurate forecasts results. (Dhaliwal et al, 2010, A)
The more accurate forecasts will influence the society. Almost all society behavior faces partly influences
of forecasts. Management and citizens are making decisions based on expectations. Forecasts are
expectations about future financial performances of a company. Many issues are dependent on
expected financial performances. A practical examples is, the extension of company (social) activities,
this affects working employees and potential employees.
In the study of Dhaliwal (2010, A) the relation between CSR disclosures and analyst forecast accuracy is
studied. Evidence is found that disclosing a CSR report leads to a significant lower level of analyst
forecast error. This means, forecasts are of better quality (more accurate) when a CSR report is
disclosed. When a company provides CSR performances, more company’s information becomes
available. Analyst inserts this information in the forecasts, which results in more accuracy of the
forecasts.
This positive relation observed in the study of Dhaliwal et al. (2010, A) between CSR reporting and
forecast accuracy is stronger for countries with a higher level of stakeholder orientation. In countries
with a high level of stakeholder orientation, companies’ social performances are important. In countries
with a high level of stakeholder orientation, fewer errors are made in the forecasts. The evidence in the
study of Dhaliwal et al. (2010, A) is found by analyzing CSR reports and forecast accuracy data, out of 24
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countries. The result that circumstances of countries influencing the impact of a CSR report is also
observed in other studies. Williams and Aguilera (2008) argue that differences exist in importance of
social performances of companies. This importance of social issues is related to forcing norms. Countries
which put more attention to stakeholders’ issues, are more dealing with stakeholder influences on
decision making. Companies which operate in countries with lower levels of natural resources are more
concerned with the impacts of using these resources. This scarcity of natural resources will result in
more stakeholder orientation.
In the study of Dhaliwal et al. (2010, A) evidence is found that the relationship between CSR disclosing
and forecast accuracy is stronger for companies with less transparency. This implies if companies with a
low level of transparency, which provide CSR information face a bigger impact on the forecast accuracy.
These lower level companies have a bigger positive change in forecast accuracy compared with
companies which are more transparent. Obviously companies which are already open (more
transparency), will achieve less additional transparency compared to less open companies. Dhaliwal et
al. (2010, A) argued that due to providing CSR information, analysts made fewer errors in their forecast,
this is the result of a more transparent view. Investors and other stakeholders benefits from this
transparent view.
The increased transparency due to providing a CSR report, is observed in the study of Dhaliwal et al.
(2010, A) but also in the study of Lang and Lundholm (1996). The study of Lang et al. (1996) is based on
older data out of 1980. The older study also includes financial disclosures. They argue that ratings made
by analysts, based on financial and non financial disclosures, are positively related to forecast accuracy.
They found evidence that companies which have more informative disclosure policies (so disclosing
more information), are followed by more analysts, this analysts providing more accurate earnings
forecast. The accurate earnings forecast are observed from less distribution among individual forecasts
and less volatility in the forecasts. The level of information in disclosures is determined by Financial
Analyst Federation (FAF) ratings. These ratings are based on annual and quarterly published information,
other published information and investors’ relations. The level of followed analysts is measured by the
actual amount of followed analysts. The error in forecasts is measured by the difference in actual
earnings per share and the median of forecasts divided by the price per share. Hope (2003) studied the
influence of disclosures on forecast accuracy. Positive evidence on this relationship was found, based on
a sample out of 22 countries. To measure the information contained in an annual report, the CIFAR
disclosure score is used. This CIFAR score incorporates 85 annual reports variables. The forecast error is
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based on the difference between actual earnings per share and forecasted earnings per share, divided
by the stock price at the beginning of the fiscal year.
The described studies of Lang et al. (1996) and Hope (2003) takes the financial disclosures also into
consideration when measuring the impact on the forecast error. But the study of Dhaliwal et al. (2010,
A) focus on the voluntary CSR disclosures and the forecast accuracy effect.
3.2.2 Public sentiment
Stakeholders put pressure to implement more social activities into the organization. This implies the
support of stakeholder for a CSR strategy (Quaak et al., 2006). If a company implements the
stakeholders demand in the organization, stakeholders are satisfied. Stakeholders’ satisfaction has an
impact on company’s sales, which is dependent on stakeholder power. (Chen, 2009) In the study of Chen
multi stakeholder satisfaction data is used for proving the positive relation. Stakeholder satisfaction
influences the future revenues. The influences of stakeholders on the future revenues are dependent on
stakeholder power. This pressure of stakeholders to provide a CSR report is in conformity with the
legitimacy theory and the stakeholder theory. In this subparagraph the effect of CSR on the satisfied
stakeholders or on the public sentiment is discussed. The effect on the satisfied stakeholders has also an
impact on financials, this will be discussed in next part.
Not only the fact that stakeholders are asking for a CSR strategy (stakeholder theory), have influences on
the public sentiment. But also the reduction in information asymmetry and agency problem is a result
too and influences the public sentiment. As already been mentioned in describing the impact of forecast
accuracy, CSR disclosure results in a reduction of information asymmetry. Stakeholders are satisfied with
this reduction, they hold more company information, after the disclosure. This results in more certainty
about future performances of the company. Also the agency problem is reduced after a CSR disclosure.
Due to the provided information stakeholders are able to monitor management. Now stakeholders have
the possibility to control management on the performed activities. This more transparent view and way
to monitor management improve public sentiment. This improved sentiment is also reflected in the
legitimacy theory, companies wants to achieve a ‘license’ to operate. With a CSR report this ‘license’ can
be obtained.
In the study of Clarkson et al. (2010) different relationship were tested. One of tested relationship was
between stakeholder perception and environmental voluntary disclosures. In this study the economical
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impact of environmental disclosures was also investigated. The CSR report was a proxy for
environmental voluntary disclosures. The Janis-Fadner coefficient was used as proxy to measure the
stakeholder perception. This coefficient is build on the relationship between positive and negative
environmental related articles. This study was based on the years 2003 and 2006. The sample was based
on companies from the five most polluting industries of the US. For measuring the voluntary
environmental disclosures, they made use of CSR reports and the quality of these reports was measured
with a self constructed index. In this study an important control variable was included the Toxic Release
Inventory (TRI) emissions. Emissions are mainly negative for the environment. There can be expected,
the public judges this emissions in a negatively, when making related information available. The overall
conclusion of this study was, CSR reports have a positive influences on the public sentiment CSR reports
increased the Janis-Fadner coefficient.
In the study of Brown and Dacin (1997) is argued that knowledge about a company, hold by consumers,
and affects the attitude and behavior towards the company. This affects was measured with a field
study, potential consumers were asked to evaluate products. CSR disclosures give consumers insight
knowledge about the social activities of the company. This knowledge will affect the consumer’s attitude
and behavior towards the company. A positive relation was observed, CSR disclosures influence
reputation. Especially an improvement of reputation takes place in countries where consumers have a
high level of awareness on social issues. Following the study of Lev, Petrovits and Radhakrishnan (2010)
this effect is extended to higher sales. In this study is argued that companies with better reputation face
an improvement in sales. This relation is stronger for companies who operate in the consumer market,
these companies have to deal with high levels of consumer’s sensitivity.
Ittner and Larcker (1998) found a positive association between consumers’ satisfaction and company’s
financial performances. Ittner et al. (1998) studied if financial performances are dependent on non-
financial measurements. Customer satisfaction is a proxy for measuring the non-financial performance.
The used customer satisfaction is highly dependent on CSR. In this study of Ittner et al. (1998) a positive
relation between CSR and customer satisfaction is concluded.
3.2.3 Financial impacts
CSR information provides information about future company’s performances. Expectations about future
performances have a financial impact. Financial performances are affected by a CSR report. The
reduction in information asymmetry and agency problem is influencing financial performances. This has
an influence on the public sentiment. Before already is described that the impact on the public
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sentiment is affected by the agency theory, information asymmetry, legitimacy theory and stakeholder
theory. Due to improvements in public sentiment, total sales improve. Total costs can be reduced by a
decrease of pollution and litigation risks. Information holds by stakeholders increase, this will lower the
information asymmetry. Due to, the provided information, stakeholders are able to control
management on environmental and social behavior. There will be expected that this shall face a
reduction in cost of equity and cost of debt. Investors receiving more certainty about the company’s
performances. In the study of Lev et al. (2010) is argued that the improvement in public sentiment is
reflected in the increase of sales. The increase in sales has an influence on the financial performances of
the company.
In the study of Dhaliwal, Li, Tsang and Yang (2010, B) the relation between voluntary nonfinancial
disclosure and the cost of equity capital is researched. In this study there is made use of CSR reporting as
an indicator for voluntary nonfinancial disclosures. They only incorporate standalone CSR reports,
coming from U.S. companies. The level of the reports are ranked, this is based on the KLD social
performance ranking. If no standalone report is disclosed, the indicator variable will have a value of
zero. The used cost of equity is calculated by three different models, the mean of these models is used
to indicate the cost of equity. The founded variables are incorporated in two different regression
models. The cost of equity plays in important role in financing the company, this financing finally faces
results in the operational activities.
The first regression model of Dhaliwal et al. (2010, B) test if companies with high cost of equity are
more likely to disclose CSR information. This is researched by including all first-time reporting company
variables. The second model tests the negative relation between cost of equity and CSR reporting. In the
study of Dhaliwal et al. (2010, B) a negative relation between cost of equity and CSR reporting was
observed. Cost of equity is reduced after the implementation of the first CSR report. For well CSR
performing companies, this association is stronger. Companies which disclose better financial CSR
performances are more attractive for investors. (Dhaliwal et al., 2010, B)
The founding’s of Dhaliwal et al. (2010, B) are in conformity with the findings of Frankel, McNichols and
Wilson (1995). In their study they investigated the reason of providing voluntary disclosures. They argue
that companies which disclose voluntary information, wants to raise capital in the future. If companies
are providing more information than required, they will be followed by more investors. When providing
more information the cost of future raised capital will decrease. In this study also evidences is found
about the negative relationship between voluntary disclosures and cost of equity. These findings are
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based on 1880 companies, from the New York Stock Exchange. Since CSR reports are voluntary
disclosures, this results are applicable to CSR reporting.
Richardson and Welker (2001) investigated in their study the relation between cost of equity and
financial and social disclosures. In this sample Canadian companies are included, in the period 1990 till
1992. For measuring the financial and social disclosures there is made use of a score, which ranks the
quality and quantity of the reports. A negative relation between cost of equity and financial disclosures
has been found. But surprisingly a positive relation between cost of equity and the quality and quantity
of social disclosures. This positive relation faces a reduction, when company has good financial
performances. There is argued that this surprising result is coming from bias in the social disclosures.
They claim, social disclosures add value to the company, not only the cost reduction is of importance but
also other benefits exist. Financial investors are not the only party which is affected by the social
disclosure, but also other stakeholders, for example consumers, are affected. The improvements in
customers’ satisfaction also play a role in CSR reporting.
The relation between firm value and voluntary environmental disclosures is examined in the study of
Plumlee, Brown and Marhshall (2008). The firm value is composed out of the cost of equity and the
future expected cashflows. The sample of this study includes 5 industry types (oil & gas, chemical, food
& beverage, pharmaceutical and electric utilities) from the United States. To measure the quality of the
environmental disclosures, they use a self constructed index, based on the GRI Report List. In this study
environmental announcement provided in the annual report are incorporated as well. The findings were
consistent with a positive relation between environmental disclosures and firm value. This implies a
negative relation between cost of equity and the quantity of environmental disclosures. More
information provided for the investors implies a reduction in the cost of equity. But the association
between future expected cashflows and environmental disclosures is positive, found in the study of
Plumlee et al. (2008). The present quality of the environmental performances, represent high financial
performances in the future.
The recent study of Clarkson et al. (2010) takes the economical and the social impact of voluntary
environmental disclosures into considerations. This study is based on the previous discussed studies of
Dhaliwal et al. (2010, B), Richardson et al. (2001) and Plumlee et al. (2008). Again in the study of
Clarkson et al. (2010), the CSR disclosures are taken as measurement for voluntary environmental
disclosure. The used sample in this study covers companies from the most polluting industries in the
U.S. The impacts of CSR disclosure on cost of equity, firm value and public perception are researched.
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The researchers choose to investigate the effects of pollution industries, because these companies have
relatively high environmental expenditures. These high expenditures possibly affect firm value. In this
study also the environmental performances are taken in consideration. For measuring this, there is
made use of the Toxics Release Inventory (TRI) emissions. For measuring the impact of CSR quality, the
CSR report quality is based on a self constructed index of Clarkson, Li, Richardson and Vasvari (2008).
The firm value is measured by the stock prices at the end of the fiscal year. The cost of equity is based
on the average of two different models. In the study of Clarkson et al. (2010) there is found evidence
about the positive relationship between CSR disclosures and firm value. The provided information adds
incremental information for investors, these results from the changes in stock prices. The control
variable toxic emissions have a negative influence on the stock price. This is obviously, more toxic
emissions have a negative influence on the environmental performances of the company and this is
reflected in the stock price. The toxic emission data provides insight to the risk and future environmental
liabilities of the company.
In contrast with the study of Dhaliwal et al. (2010, B) the study of Clarkson et al. (2010) found no
evidence for a reduction in cost of equity. This difference can be explained by the differences in studies,
the study of Clarkson et al. (2010) studied the most polluting companies. Polluting companies are more
involved with risk related due to the pollution. This risk will increase the cost of equity of polluting
companies.
Carbon emissions are an important factor in the environmental performances of companies. Providing
information about this variable can be done with a CSR report. The influences of carbon emissions are
studied in the research of Matsumura, Prakash and Vera-Munoz (2010). In this study there is
investigated whether carbon emissions is associated with firm value and cost of equity and cost of debt.
The researched studied if disclosures of carbon emission have an impact on the firm value, cost of equity
and debt. Carbon emission is an important environmental performance, carbon emissions is a
measurement for the pollution of a company. This pollution amount is furthermore related to the
amount of future claims. When stakeholders are provided with carbon emission information, an effect
on financial variables is expectable.
For investigating the relationship between carbon emission on firm value, cost of equity and cost of
debt, Matsumura et al. (2010) made use of S&P 500 companies for the period 2006-2008. The data
about carbon emissions are observed from the Carbon Disclosure Project (CDP) database. CDP is an
organization which holds the climate change information of companies. In this study also a separation is
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made between high and low carbon emitters. The highly carbon emitters are mainly the chemical,
utilities and computer and electronic product manufacturers. For testing the influences there is made
use of a regression, in this regression several control variables are implemented.
The results show a negative relation between firm value and carbon emissions. Companies with a higher
level of carbon pollution will face a lower level of firm value. This relationship is showed for the high
carbon emitters, but no negative relationship was found for the low carbon emitters. This conforms the
expectation, that carbon emission is more a concern of high carbon intensive industries. The negative
effect of carbon emission is reflected in lower level of firm value. Surprisingly a negative relation is
observed between carbon emission and the cost of equity. This relation is significant for the highly
carbon emitters and not significant for the low carbon emitters. At beforehand a positive relation was
expected, because the negative effect of carbon emissions should compensate investors. Therefore a
higher level of cost of equity due to an increase in carbon emissions was at beforehand expected. The
surprisingly negative relationship is showed for high and low carbon emission companies.
Some studies also investigate the financial impact of CSP. CSP is more focused on the performances and
the outcomes of the corporate social activities. Wood (2010) uses CSP to examine the impact of the
business-society relationships with financial results. The study of Wood (2010) is defined as a Meta
analyses, based on the findings of other studies the financial impact of business-society relationships is
investigated. The financial impact of CSP contains the impact of the content of a CSR report. The studies
of Orlitzky, Schmidt and Rynes (2003) and Margolis, Elfenbein and Walsh (2007) studied the impact of
CSP on financial performances. They both used a Meta analysis to examine the relationship. Orlizkey et
al. (2003) takes 52 studies with 33.878 results into account and found a positive relationship. Margolis et
al. (2007) also found a positive relationship, based on 167 studies. But the writers of this study claim
that the founded relationship was a ‘mildly positive relationship’.
Wood (2010) judged prior research on the relationship between CSP and financial performances. She
concluded that the research on this relationship is already well established. Wood (2010) concludes that
the research on CSP should be more relevant for stakeholders and society. She observed a limitation in
present studies, that they are now more focused on the company’s itself. This limitation can be found in
the study of Orlitzky et al. (2003) in this study the CSP are measured by 4 company’s components, the
CSR disclosure, the reputation ratings, the social audits, CSP processes and observable outcomes and the
managerial CSP principles and values. These components don’t include measurements of stakeholders
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and society. At least Wood (2010) concludes that the research in CSP should be more linked to other
research fields, for example, human resources, sociology and business ethics.
3.2.4 Summary impacts
In previous parts the results of previous literature are discussed. The tested relationship is between CSR
reporting and forecast accuracy, CSR reporting and public sentiment and between CSR reporting and
financial performances. For providing an overview the results of these studies are summarized in the
tables below.
Table: Summarization of prior research of impact on forecast accuracy
Study Tested relationship Used proxies Time period
Founded relationship
Dhaliwal, Radhakrishnan, Tsang and Yang(2010)
CSR disclosures related to the forecast accuracy (among countries)
Standalone CSR report and actual forecast error
1990-2007 Positive
Lang and Lundholm (1996)
Disclosures related to forecast accuracy
Financial and non financial disclosures, rated to FAF rating and actual forecast error
1985-1989 Positive
Hope (2003) Disclosures related to forecast accuracy
Financial and non financial disclosures, rated to CIFAR score and actual forecast error
1991 and 1993
Positive
Table 4: Summarization of prior research of impact on public sentiment
Study Tested relationship Used proxies Time period
Founded relationship
Clarkson, Hua Fang, Li and Richardson (2010)
Environmental voluntary disclosures related to social (public perception) and financial impact
CSR report, quality is based on index and Janis Fadner coefficient
2003 and 2006
Positive
Brown and Dacin (1997)
Knowledge of company related to consumers
Field study, evaluation of products
1996 Positive
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behavior and attitude
Ittner and Larcker (1998)
Non-financial performances and financial performances
Customer satisfaction (costumer, business unit and firm level data)
1994 and 1995
Positive
Table 5: Summarization of prior research of impact on financial performances
Study Tested relationship Used proxies Time period
Founded relationship
Margolis and Walsh (2003)
Corporate social performances related to cost of equity
Results of prior studies 1972-2003 Positive
Dhaliwal, Li Tsang and Yang (2010
Environmental voluntary disclosures related to cost of equity
Standalone CSR report, rated on KLD ratings and cost of equity
1993-2007 Negative
Richardson and Welker (2001)
Social and financial disclosures, related to cost of equity
Social and financial reports ranked with a quantity and quality score and cost of equity
1990-1992
Negative (financial disclosures) Positive (social disclosures)
Plumlee, Brown and Marhshall (2008
Environmental voluntary disclosures related to firm value
CSR report, ranked on GRI score and cost of equity and future expected cashflows
negative
Clarkson, Hua Fang, Li and Richardson (2010
Environmental voluntary disclosures related to social and financial impact
CSR report, quantity is based on index, cost of equity and firm value and TRI emissions
2003 and 2006
No relationship (cost of equity) and Positive (firm value)
Matsumura, Prakash and Vera-Munoz (2010).
Carbon emissions related to environmental performances
Disclosed carbon emission data, firm value and cost of debt and equity
2006-2008
Negative (firm value), Negative (cost of equity) and Positive (cost of debt)
Chapter 4 Hypotheses development
In chapter 3, the incentives and implementation of a CSR strategy are described. The CSR report is seen
as the last step in the implementation of a CSR strategy. In a CSR report the CSR performances are
disclosed. The third chapter also described the impacts of CSR reporting. Financial impacts can be
observed as a result of a CSR disclosure, but impacts on the forecast and the public sentiment are also
observable. This paper focuses on the impact on the reputation. The terms reputation and public
sentiment are used interchangeably in this paper. In previous research the term public sentiment is
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often used, but stakeholders’ impression is more directly reflected with reputation. In this paper the
impact of CSR reporting on reputation is examined.
This chapter describes the development of the hypothesis. The hypothesis is based on the impact of the
reputation, the effect on the reputation was already investigated in prior research. But additional
research should be done to test the impact of CSR reporting on reputation. To test the relation between
CSR reporting and reputation, five sub hypotheses are formulated. The first paragraph of this chapter
describes the development of the main hypothesis. In paragraph two, the differences between the
developed hypothesis and the existing literature are described. In the third paragraph a description is
provided about the sub hypotheses.
4.1 Development of the main hypothesis
Changes in financial performances can be observable after disclosing a CSR report. Information which is
disclosed in a CSR report provides an overview of the past CSR performances of the company, a reaction
on the financial side is expectable. The financial impacts of a CSR report are already well investigated in
existing literature. In this thesis, the focus is not on the financial impacts but more on the social side of
the company, the reputation.
In a CSR report, the performances related to the CSR strategy are described. When making CSR
performances publically available, all stakeholders will be influenced. If a CSR strategy is implemented in
the company, the company is aware of the social and environmental consequences of production. The
performances related to the CSR strategy influence the investors’ perception of the company, but also
the perception by customers and environmental foundations are influenced (Clarkson et al., 2010). CSR
strategy is a social concept, which incorporates different stakeholders. The whole society is indirectly
affected by the CSR performances of the company. The impact contains the whole society, this makes it
interesting to investigate the impact of CSR reporting.
Prior studies examined the environmental and social performances of companies, for example the study
of Clarkson, Li and Richardson (2004). This study distinguished two types of environmental performers:
good environmental performers and poor environmental performers. Companies that can be considered
as good environmental performers are exceeding current environmental regulations. On the other hand,
poor environmental performers are companies that are meeting the minimum level of environmental
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regulations. Clarkson et al. (2004) argue that companies that are good performers benefit from the
exceeding. But poor performers do not receive benefits related to environmental regulations, but
instead face obligations to incur future expenditures. When a company reaches a minimum level of
environmental regulations, it can be expected that future pollution and litigation costs increases.
Clarkson et al. (2004) described, that poor environmental performance companies have lower
environmental benefits. But due to the lower level of regulations they also have lower costs. Clarkson et
al. (2004) described only the financial effects of good and poor environmental performances, but social
effects are also expectable. The disclosure of a CSR report, which incorporates environmental and social
performances, provides insight in the distinction between good and poor performances. The good and
poor CSR reporting performers are observable by the quality of the CSR report. When a company
provides a high quality CSR report, CSR reporting guidelines are followed in a proper way. CSR reports
that meet lower levels of CSR quality are to a lesser degree in conformity with CSR reporting guidelines.
In the remainder of this chapter the above described expectation of CSR reporting quality on reputation
is discussed.
The agency problem will be reduced after the CSR report disclosure. When a CSR report is of higher
quality, the report takes more guidelines into consideration. Guidelines of reporting increase the
transparency, so it can be expected that higher quality CSR reports result in a lower agency problem.
Stakeholders observe more transparent information, to monitor management’s CSR behavior. The
information asymmetry reduces. (Healy et al., 2000) The company makes decisions in favor of society, to
obtain power from society (Rodriguez and LeMaster, 2007). Communicating CSR information, is in
conformity with the legitimacy theory (Lightstone et al. (2008) and Lui et al. (2008), Cho et al. (2007)
and Dowling et al. (1975). The public is more satisfied when it is provided with more reliable
information. The quality of the CSR information is represented by the quality of the CSR report. Based on
the legitimacy theory it can be expected that managers wants to develop a high quality CSR report, to
obtain more legitimacy from the public. The stakeholder theory implies that companies disclose a CSR
report based on the pressure of stakeholders (Rodriguez and LeMaster (2007) and Huang et al. (2010).
The public will benefit from this, when management acts more in conformity with the CSR desires of the
public. The public will value this in a positive way, which leads to an increase of the reputation (Clarkson
et al., 2010). The public values CSR positively (Formbrund and Shanley, 1990). This implies that the
quality of the information provided in a CSR report will also increase the reputation. The agency
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problem, information asymmetry, the legitimacy theory and the stakeholder theory expects that from
CSR reporting the reputation increases. This expectation results in the following hypothesis:
CSR reporting quality increases the reputation of a company.
Reputation is the impression the public has about the company. CSR reporting has an impact on the
reputation, this impact can be positive or negative, dependent on the published information. Since CSR
reports provide information about past CSR performances, an influence on reputation is expected.
Argued by Clarkson et al. (2004) and Patten (2002) public sentiment can be influenced in a positive way
due to environmental performances.
4.2 Difference compared to previous studies
The public sentiment in relation to CSR has already been investigated in the studies of Brown et al.
(1997), Ittner et al. (1998) and Clarkson et al. (2010). They all found a positive relation between CSR
disclosure and the public sentiment. But there are several differences between the design of these prior
studies and the design of this paper. One of the differences is located in the used proxies of measuring
reputation. Clarkson (2010) used the Janis-Fadner coefficient. This coefficient uses positive and negative
environmentally related articles that are published about the company. This is not the most accurate
tool for measuring public sentiment. These environmentally related articles are published by different
media and read by a different public. Clarkson et al. (2004) suggest that, to formalize a judgment the
public will use the positively and negatively related articles. The judgment of the whole public together
is reflected in the public sentiment. Clarkson et al. (2004) measure this public sentiment by a formula
that incorporates the number of negatively and positively related articles. So they suggest that
companies, which have exactly the same number of positive and negative environmental articles also,
have the same public sentiment. With this formula it is suggested that all articles have the same impact
on public sentiment. This is not an accurate representation, since articles face different levels of impact
on the public sentiment. For instance, if a negative environmental article is published in countries most
popular newspaper, a bigger influence on public sentiment is expected, in comparison with the article
being published in a small local newspaper. Therefore it is not accurate to suggest that all negative (or
positive) articles have the same influence on public sentiment.
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In the study of Brown et al. (1997) a field study is used for analyzing the public sentiment. In this field
study, potential consumers are asked to evaluate products on the CSR performances. The products are
separate analyzed. It is very difficult to evaluate all existing single products. When companies provide a
service, not a real tangible product is delivered, analyzing an intangible product is more difficult. Also it
can be expected that companies that deliver products or services to specific industries and not to
consumers, are not well evaluated by public. The public does not own enough detailed information to
evaluate the products or services in an accurate way. When the public is evaluating these unknown
companies, the evaluation is based more on the image of the company. For example, when the public
only knows the logo of the company, the evaluation is mainly based on the associations with this logo.
The study of Brown et al. (1997) focuses more on the marketing side. The evaluating of products by the
public will be based on all information held by the public of the particular product. This information can
be influenced by marketing. Marketing is an important tool, it has the purpose to influence the
information known by the public about products in a positive way. Therefore evaluating products to
observe the impact of CSR is not a right method. Consumers are not able to evaluate correctly the
companies CSR performances based on product evaluation.
Ittner et al. (1998) used the proxy customer satisfaction as a tool for measuring the non financial
performances of the company. In their study the relation between financial performance and non
financial performances are investigated. When customer satisfaction is taken as a proxy for non financial
performances, they assume a perfect relation between customer satisfaction and non financial
performances. In this study the level of customers’ satisfaction is build upon three different variables,
the customer, business unit and firm level data. It cannot be assumed that customers’ satisfaction has a
perfect relationship with non financial performances. Because customers satisfaction is dependent on
many criteria. Therefore, the study of Ittner et al. does not make the right assumption about the perfect
relation between customer satisfaction and non financial performances.
The used proxies in previous studies are not the only reason for developing this paper for examining the
relationship between reputation and CSR reporting. Also the focus of the studies differs. In the study of
Clarkson et al. (2010) it is investigated whether a positive relation between public sentiment and
environmental disclosures exists. For this study they researched companies that are operating in the five
most polluting industries in the US. The outcome was a positive relation between the Janis-Fadner
coefficient and the CSR disclosures. The polluting industries do not represent all companies, so the
outcomes are only useful for the polluting industries. In the developed hypothesis no restriction of
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companies or industries has been made, so the outcomes will be representative for all companies and
industries.
4.3 Development of sub hypotheses
The relation between the reputation and CSR reporting is influenced by many factors. A selection of the
expected influencing criteria has been made. In this paragraph the criteria are described and the
expected influences are provided.
The size of a company is a factor that has an impact on the reputation and the CSR report. Larger
companies face more public attention, through their larger size they are well known. More stakeholders
are involved in the processes of the company, the company reaches a larger public. When more
stakeholders are involved in the company, the company is facing more pressure to pursue a good
reputation. If the company implements a CSR strategy, the company is aware of negative environmental
and social influences of their production. A CSR report provides more transparency in the CSR
performances of a company. From the agency theory and information asymmetry it can be expected
that public values the CSR reporting positively. This results in the expectation that CSR reporting
improves reputation. The public is more aware of the impact of larger companies (Huang et al., 2010)
these larger companies have more incentives to provide a complete and high quality CSR report. Besides
the role that size influences company’s public attention, size also plays an impact on the financial
resources. In the study of Dhaliwal et al. (2010, A) it is argued that larger companies have more financial
resources available to develop a CSR report. This implies that larger companies are more willing to invest
in CSR activities and disclose these performances in a CSR report. So larger companies will achieve a
reduction in information asymmetry and the agency problem which results in an increase of the
reputation. The following sub hypothesis can be inferred.
The relationship between CSR reporting quality and the reputation is positively influenced by
larger companies.
Financial performances of companies are also an important element in the relation between CSR
reporting and the reputation. Argued by Dhaliwal et al. (2010, A) companies with better financial
performances have more financial resources available to implement a CSR strategy and disclose a CSR
report. In the study of Dhaliwal et al. (2010, A) the impact of the cost of equity on CSR reporting was
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studied. In this study evidence is found that cost of equity decreased after the first CSR disclosure. So a
financial advantage due to the CSR disclosure was observable, investors valued the CSR disclosure
positively. The CSR disclosing companies face a higher amount of new equity, then in comparison with
not disclosing CSR companies. Also it can be expected when companies have a good financial
performances, they have an improved influences on the society. Good financial performers provide
benefits for the society. For example, the companies pay more taxes and also have more employees.
This leads to an increase in reputation. The effect of financial performances on CSR reporting and
reputation is incorporated in the following sub hypothesis:
The relationship between CSR reporting quality and the reputation is positively influenced by
better financial performances.
The reputation of companies is dependent on the level of customer satisfaction. Companies are able to
influence the satisfaction levels. Companies have the opportunity to provide additional services when
selling products or services. When these products or services are delivered with additional services,
customers appreciate this, resulting in a higher customer satisfaction. An improved reputation follows
due to the provided additional services. A company can differentiate from other companies when
building a good reputation. If a furniture shop provides a well structured delivery service, the reputation
of the company improves. Due to this delivery service the company can differentiate from other
furniture shops. The expenses that represent the services which are provided to the sold products and
services are the selling general and administrative (SG&A) expenses. Argued by Palepu, Healy and Peek,
(2010) the amount of the SG&A expenses will represent the level of services which lead to customer
satisfaction. When a bigger amount of SG&A expenses are provided per amount of sales, reputation
faces an improvement. This expectation is expressed in the following sub hypothesis:
The relationship between CSR reporting quality and the reputation is positively influenced by
higher general selling and administrative expenses to sales.
Awareness of social and environmental issues is dependent on many circumstances. For example, the
economical situation of countries is important for CSR related activities. When in countries a good
economical environment exist, more financial resources are available to invest in CSR strategy. This will
influence the reputation. Also many other country specific circumstances are influencing the decision
making process, from choosing a CSR strategy to disclosing a CSR report. When the government
stimulates companies to implement CSR strategy and to provide information about the CSR
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performances in a CSR report, more companies have incentives for the implementation of CSR strategy
and the disclosure of a CSR report. This country specific circumstance is observed in the study of
Dhaliwal et al. (2010, A). In this study evidence is found that the power of the relation between CSR
disclosures and forecast accuracy is different among countries. Countries with more stakeholder
orientation are facing a stronger relation. Countries can have a hidden information culture, in these
countries significantly less information is provided to stakeholders. These country specific factors will
influence the CSR report disclosure behavior, which finally have an influence on the public reputation.
The following sub hypothesis will show this expectation:
The relationship between CSR reporting quality and the reputation is influenced by regions of
companies.
Not only country specific circumstances have influences on the CSR reporting behavior, but also industry
circumstances have influences on the CSR report behavior. In the study of Richardson et al. (2010) the
control variable Toxic Release Inventory (TRI) emissions is included. The study investigates companies
from the five most polluting industries. This TRI variable is seen as a measurement for relative
environmental performance and is used to rank the companies within an industry. Evidence is found
that the TRI emission has a negative impact on firm value and a positive impact on the cost of equity.
These findings are explained by the possible future liability claims, which lower the firm value. It can be
assumed that TRI emissions differ among industries. For example, financial services companies face a
lower level of toxic emissions than industrial companies. Companies that operate in an industry with
high levels of TRI emissions are harming the environment. This is valued in a negative way by the public
and results in a lower reputation. From the legitimacy theory it is expected, that companies operating in
high emissions industries have a high awareness of social and environmental issues. The expected effect
on reputation and the awareness of CSR reporting among industries implies that the investigated
relationship will differ. This expectation is implied in the following sub hypothesis:
The relationship between CSR reporting quality and reputation is influenced by industries of
companies.
4.4 Summary hypothesis development
This chapter introduced the main hypothesis of this paper. The expectation is that a CSR report
positively influences reputation. This reputation is dependent on the available information of the
company. Due to a CSR report more information becomes available and this improves the reputation.
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Some previous studies already observed a positive relation between these two variables, but used a less
accurate proxy for the reputation or measured the impact of only particular industries.
Chapter 5 Methodology
In the previous chapter the hypotheses are developed, these developed hypotheses are tested in the
empirical research. In this chapter the design of the empirical research is described. In the first
paragraph the development of the sample is provided. In the second paragraph the methodology for
investigating the relationship between reputation and CSR report disclosure follows. The third paragraph
provides an explanation of the used data.
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5.1 Sample
In this paper the impact of a CSR report on the reputation of companies is tested, related data about the
reputation and CSR reporting is used. Two important databases are used to obtain the relevant data of
the reputation and the CSR report. In this paragraph, first the used databases are discussed and
thereafter the relation with the observed data is explained. The final part of this paragraph explains the
sample size and the time period.
5.1.1 Used databases
For observing the reputation, the reputation index is used. The reputation index ranks companies based
on their reputation. The reputation index formulates public attitude to companies. For obtaining this
reputation index, the Fortune 500 database is used. The reputation index and components of the
reputation index of the Fortune 500 are used in the studies of Griffin and Mahon (1997), Brown and
Perry (1995) Conine and Madden (1987), Formbrund and Shanley (1990) and Mc Guire, Schneeweis and
Branch (1998). The Fortune 500 database is a service provided by CNN Fortune & Money. Each year, the
Fortune database ranks companies on reputation. CNN Fortune & Money formulate a ranking list which
is called Most Admired Companies and is based on the reputation index. The reputation index is
composed on nine key components which influence the reputation index5. Directors, security analysts
and executives define the reputation of companies on the nine different components. Results of
respondents are taken together, which leads to the final reputation index of the Fortune 500.
The second important database is the Global Reporting Initiative (GRI) Report List. This database asses
the level of a CSR report. The GRI Report List is provided by the GRI. In this list the level of CSR reports
are provided, this level is based on the degree of applying the guidelines of the GRI. The GRI calls this
level the application level. In the application level, no judgments about the CSR performances are
included. Companies are free to decide if their CSR report is included in the GRI Report List. This implies
that it is not certain that companies which are not included in the GRI Report List are not disclosing a
CSR report.
5 Nine components of the reputation index: innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investments, quality of products/services and global competitiveness. Source: http://money.cnn.com/magazines/fortune/mostadmired
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5.1.2 Development sample and time period
In the Fortune database, reputation indexes of more than 700 companies over the time period 2006 up
till and including 2011 are incorporated. The GRI Report List includes more than 2700 disclosed CSR
reports, in the timeframe from 1999 up till and including 2010. Of companies which are included in the
sample, the two core variables reputation index and level of CSR report should be known. Therefore the
companies, which occurred in both databases, are included in the sample. But also the data should be
matched with the expected time lag of the reaction of the CSR reporting on the reputation index. This
implies that the reputation of next year is affected by the CSR report of prior year. As a consequence the
reputation index of 2006 should be matched with the CSR report information of 2005. The Fortune
database starts in 2006, which matches with the CSR reporting quality of year 2005. Because a very
limited amount of companies have registered their CSR report of 2010 on the GRI Report List, year 2010
is not incorporated in the time period. Finally this leads to studying the relation between CSR reporting
quality and reputation between 2005 and 2009.
After finding common companies of the Fortune database and the GRI Report List, the sample included
almost 300 companies. In the sample only companies should be included which match the CSR report
level and next year reputation index, there for only 250 companies were finally incorporated. This
sample is further declined by companies of which the control variables are not observable, for example,
due to the acquisition of Air France-KLM the financial control variables of this company are not
observable in the selected time period. For a limited amount of companies (32) data about level of CSR
report and reputation index are known for the whole selected time period, but all companies are
incorporated in the sample. For the years 2005 up till and including 2009, 85, 106, 138, 167 and 175
respectively data points are included, which have a total sample size of 671 data points. These data
points are companies of which all variables are known, including the control variables. In appendix A the
total sample is showed.
5.2 Methodology of statistical research
To investigate the relation between CSR reporting quality and the reputation linear regression analysis is
used. When making use of a regression formula, the existence of a relationship is observable. In the
hypothesis is predicted, that CSR reporting quality influences the reputation. Therefore in the developed
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regression model, the reputation is predicted by the CSR reporting level. This is called the basic model.
This basic model is shown below:
REPt = α + β1CSRt-1 + ε
For providing more evidence on the regression, control variables should be included. The control
variables represent the sub hypotheses. The use of control variables is important, because it is not
plausible that CSR reporting is the single variable that has influence on the relation between CSR
reporting and reputation. When a single control variable is included in the basic model the influence of
the control variable is tested. Finally all control variables are included in the regression model. This leads
to the following regression model:
REPt = α + β1CSRt-1 + β2SIZEt-1 + β3FPERt-1 + β4SGASt-1 + β5REG + β6IND + ε
REP Reputation of companies (observed from the reputation index provided by the Fortune 500)
CSR CSR report level (observed from the application level provided by the GRI Report List)
SIZE Size of the company, based on the total sales (observed from Thomson One Banker)
FPER Financial performances, based on the return of assets (observed from Thomson One Banker)
SGAS Selling general and administrative expenses related to sales (observed from Thomson One
Banker)
REG Region where the company is from (observed from the GRI Report List)
IND Industry wherein the company operates (observed from Thomson One Banker)
A linear regression is used to test the expected relationships. The dependent variable REP, is predicted
on basis of the independent variables. In the regression model qualitative variables are included. The
influence of the qualitative variables in general are measured by making use of the above described
method, this method is called Method 1. The variable CSR reporting level is a qualitative variable. In
method 1 is measured if CSR reporting level has an influence on the reputation.
Besides the general influence of the qualitative variables, it is also interesting to investigate if a specific
CSR report level has an influence on the reputation. These influences of the specific categories in a
qualitative variable are measured with method 2. In method 2 dummy variables are used. The amount
of dummies which represent the qualitative variable is always one less the amount of categories in the
qualitative variable. The coefficient of the dummy variables reflects the difference in impact with the
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reference variable. This reference variable is the variable which is excluded in a dummy variable. The
influence of the category wherefore no dummy is developed, contains the constant variable.
Besides a regression a correlation is used to investigate the relation between two variables. The
correlation represents the relation between two variables in both ways. These both ways implies that
the influence of the dependent variable is also investigated on the independent variables. The outcome
of the correlation, examines if two variables can predict each other. A correlation with a categorical
variable is impossible, therefore the One Way Anova test will be used to investigate the relation.
5.3 Data
In the previous paragraph the regression formula was introduced. In this paragraph the developed
variables are introduced. Also the expectations about the influences of these variables in the regression
formula are described.
The REP is stated for the reputation, this is the dependent variable of the model. The reputation index is
used as a proxy for reputation. In the first paragraph of this chapter already a description has been given
about database and the development of this reputation index. The taken reputation which is
corresponding with the CSR disclosure is one year later than the CSR disclosure.
The variable CSR is stated for the quality level of a CSR report. As has already been discussed, this level is
observable in the GRI Report List. Nine different application levels exist in the GRI Report List, the A+, A,
B+, B, C+, C, U, IA and CI. The levels A+, A, B+, B, C+, C and U are application levels for reports that
conform the GRI G3 Guidelines, which were launched in 2006. The A+ rating is the highest rating and the
C is the lowest rating. CSR reports obtain the U rating when the quality of a CSR report is not defined.
The quality levels IA and CI are based on the GRI G2 Guidelines from 2002. The IA level is for CSR reports
which are ‘In Accordance’. The CI level is applicable for CSR reports which are ‘Content Index Only’
checked. Since the level of a CSR report is a qualitative variable, the CSR variable in the regression
formula is tested with a dummy variable.
The control variable SIZE is stated for the size of the company. The size of a company is measured with
the logarithm of the total sales. Total sales of a particular year have an influence on the reputation of
the following year. In the study of Dhaliwal et al. (2010, A) the total sales are also used to measure the
size of a company. The logarithm has the result that the total sales are normal distributed, which is an
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important condition of regression. The total sales are observed from the financial database Thomson
One Banker. In the hypotheses development is already stated that larger companies are facing more
public attention. This will result in more pressure to disclose a well qualified CSR report. Therefore a
positive sign of the size coefficient is expected.
Financial performances are also included in the regression, this is represented by the FPER variable. To
measure the financial performances return on assets (ROA) is used as a proxy. This variable reflects the
financial performances compared with an item to reflect the company size. The financial performances
should be controlled for size, because larger companies have better absolute financial performances.
The ROA is a relative financial performance measurement, it measures how beneficial the assets of the
company are. The financial performances of a particular year influence the reputation of the next
following year. The ROA is observed from Thomson One Banker. It is to be Expected that good financial
performances have a positive influence on the reputation, other variables can be used to measure the
financial performances. A positive sign of the financial performance coefficient is expected.
The SGAS variable is stated for the percentage of selling general and administrative expenses to sales. In
the hypotheses development was predicted that selling general and administrative expenses
expectantly have a positive influence on the reputation. The SGAS control variable is stated for the
reputation expenses. This variable is controlled for the sales, because, there can be assumed that the
percentage of selling general and administrative expenses relative to sales makes a difference in the
level of reputation. Also the variable has influence on the reputation of next year. The selling generals
and administrative expenses to sales are observed from Thomson One Banker. For this variable a
positive sign of the coefficient is expected.
The hypothesis about the influence of countries on the relation between reputation and CSR reports is
tested with the variable REG. The companies in the sample come from six different regions and 26
countries. The regions are Europe, Northern America, Latin America, Africa, Asia and Oceania. The
countries are clustered in this six regions, the sample is too small to investigate the influence of each
individual country. This variable is also a categorical variable, in the regression formula dummies are
used to investigate the influence of a specific region relative to another region. For this categorical
variable no prediction can be made on the direction of the influence on the reputation and CSR
reporting. At least, expectations can be made that there are differences observable among the different
regions.
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The final variable IND contains the hypothesis of the differences of influence between industries. A
separation of the types of industry is made based on the Industry Classification Benchmark (ICB). This
benchmark divides sectors in ten industries. These industries are: Oil & Gas, Basic Materials, Industrials,
Consumer Goods, Health Care, Consumer Services, Telecommunications, Utilities, Financials and
Technology. This categorical variable is in the second method represented with dummies. No
expectations can be made about the influence of specific industries on the reputation. None the less
differences in the influence on the reputation among industries are expectable.
Chapter 6 Analytical Results
In the previous chapter the data and the method for the statistical analysis is explained. In this chapter
the results of the analysis are described. First, a description is provided about the data. The changes in
data are summarized during the time period. In the second paragraph, the results of the statistical
analysis are described. The statistical analysis contains the correlation and the regression between CSR
reporting and reputation.
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6.1 Descriptive analysis
The whole sample over the entire time period includes 669 data points. In this paper there is no focus on
the results of the entire period, because the separate years and their data are more important. The
individual years have different amounts of data points, year 2005 has 85 matching data points, where
the matching data points in 2009 increased to 175. When all years are taken together, the results are
biased due to years which provide more data. Also some companies have matching data for the whole
time period (for example, Henkel and Volvo). But other companies have matching data for a few
selected years in the time period (for example, Reckitt Benckiser Group and Bridgestone). When there is
focus on the entire time period, the results are biased because companies which have all data of the
entire time period are more represented in the sample. Therefore the results of the individual five years
are explained. This paragraph has the purpose to provide a description of the data in the five different
years.
In table 6 the distribution of the different CSR report levels over the years are summarized. This table
shows IA and CI level do not appear in the years after 2006. This is in conformity with the IA and CI level
assessed according to the G2 guidelines. The remainder levels, A+ up till U are assessed according to the
G3 guidelines, which are initiated in 2006. After 2006 the CSR reports are judged on the level of the G3
guidelines, this explains the lack of IA and CI level reports after 2006. Before 2006, some CSR reports
(18,8% for 2005 and 56,6% for 2006) already took the new G3 guidelines into consideration.
Table 6: Distribution of the CSR reporting levels from 2005 till 2009.
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A+ A B+ B C+ C U IA CI0.0
10.0
20.0
30.0
40.0
50.0
60.0
Distribution of CSR report level over the years
20052006200720082009
CSR Report Levels
% o
f tot
al C
SR re
port
s
When the years are taken into consideration which includes reports that are judged on the G3
guidelines, no increase in CSR report level is observed. The percentages of reports that meet the A+ level
indeed increases over time (from 13,0% in 2007 till 19,4% in 2009), also the B level increases (from
12,3% in 2007 till 18,9% in 2009). From these single level increases it is not possible to conclude a
general increase in CSR report level. In this table it is not possible to assess, of which CSR quality level
the increases in A+ and B levels come from.
None the less it is possible to conclude, that the percentage of reports of which no level is defined (the
U level) decrease over time. When the reports which are conform the G3 guidelines are taken into
consideration over the years 2005 and 2006, the percentage of undefined report level is 53,3% for 2005
and 37,5% for 2006. After 2006 the amount of the U level reports increase once in 2007. A presumption
can be made that the undefined level reports in 2007 also include CSR reports which were still in
conformity with the G2 guidelines. Since no additional information is given from the GRI Report List on
which characteristics the U quality level is judged, no statements can be made to assess the increase in
2007.
Table 6 provides the participation of the different CSR report levels in the five selected years. It is
important to show the distribution of the different variables over the CSR reporting levels. This is shown
in Appendix B. The distribution of CSR reporting levels over the control variables, (size, financial
performances, selling general & administrative expenses to sales, region and industry) is shown. The
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qualitative variables region and industry are divided in the predetermined regions and industries, where
the continuously variables size, financial performances and selling general & administrative expenses to
sales are divided into categories. In the distribution the average, medium and maximum amounts are
considered. In the appendix is shown how much of the CSR reports, which meet a certain quality level,
meet a specific category of the remainder variables. This implies 1,2% of the companies included in the
samples have a CSR report in 2005 which meet the A+ level and have sales less than 50 billion Dollar.
Appendix B indicates that companies which disclose a CSR report conform the A+ level, mainly come
from Europe. With this assumption a note should be made, most included companies come from
Europe, Northern America follows directly on Europe, Asia is in third place, thereafter Latin America,
Africa and Oceania follow. When taking this distribution into account for all years, Europe scores better
than Northern America on the A+ level. From this appendix can be obtained that Northern America
provides more CSR reports which meets the levels B, C+, C and U than Europe does.
Remarkable is that a relative high percentage of the A+ reports meet the lowest category of the selling
general & administrative expenses to sales. In 2009 36,1 % of the companies in the sample have
expenses to selling general & administrative to sales of less than 15%. Also in 2009 19,4% of the CSR
reports meet the requirements of the A+ level. Therefore it can be expected that approximately 7%
(36,1*19,4%) of the CSR reports in 2009 meet the A+ level and the lowest selling general &
administrative expenses to sales category. In reality this is 9,7%, in comparison with the expectation of
7% this is a difference of almost 40% ((9,7-7)/7*100). This implies that the CSR reports which have a low
selling general & administrative expenses to sales and the A+ level is relative high. The above described
example of the relative high existence of A+ level CSR reports in the lowest level of the selling general &
administrative expenses to sales in 2009, is also applicable for the years 2005 till 2008.
In the distribution of all CSR reporting companies over the different industries no big differences occur.
Also the distribution of the quality level of CSR reports over the different industries, are no big changes
in time. This also applies for the variables size and financial performances.
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6.2 Statistical Results
To answer the main hypothesis about the impact of the CSR reporting on the reputation, the
methodology which is developed in chapter 5 shall be followed. This is done by using the statistical
program SPSS. In this paragraph the results of the SPSS output are presented. All these outputs
investigate whether the expected relationship occurs. First the results of the correlation are explained,
thereafter the results of the regression.
6.2.1 Correlation
The correlation is a measurement to observe the relation between two variables. For measuring the
relation between continuously variables, the correlation should be used. The correlation cannot be used
if one or two of the variables are qualitative variables, another measurement should be used to
investigate this relation. First the correlation between the continuously variables, (reputation, size,
financial performances and general selling & administrative expenses to sales) is shown. Thereafter the
relation between the qualitative variables (CSR report level, region and industry) on the reputation is
discussed. To measure the relation between a continuously variable and qualitative variable One Way
Anova test is used.
The correlation can be positive or negative, dependent of the sign of the coefficient. A positive
coefficient implies a positive relationship and a negative coefficient implies a negative relationship. The
degree of connection is dependent of the value of the coefficient. When the coefficient is zero, no
connection is observable. A value of minus one or plus one, implies a perfect relationship.
In this paper a significant level of 10% is used, this implies a correlation coefficient with p-values above
10% no connection is demonstrated. In table7 below, the correlation coefficients are provided between
the reputation, size, financial performances and the general selling & administrative expenses to sales.
In this table the significant relations are divided into the degree of significantly. When a coefficient is
displayed with 3 stars, the coefficients is also significant at a lower level (p < 0,01).In this paper the
effects of different variables on the reputation are examined, therefore the significant results of the first
column are explained.
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Table 7: Correlation between the continuously variables
*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1
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Rep. Size Fin. PerfSG&A to Sales
Rep.2005 1 0,236** 0,237** -0,1412006 1 0,146** 0,263*** 0,0822007 1 0,164 0,129* -0,0572008 1 0,081 0,432*** -0,0242009 1 0,067 0,365*** -0,011
Size2005 0,236** 1 -0,292** -0,1522006 0,146** 1 -0,066 -0,1112007 0,164 1 -0,057 -0,248***2008 0,081 1 0,017 -0,263***2009 0,067 1 -0,078 -0,039
Fin. Perf.2005 0,237** -0,292** 1 -0,054
20060,263*** -0,066 1 0,155
2007 0,129* -0,057 1 0,048
20080,432*** 0,017 1 0,148**
20090,365*** -0,078 1 0,177**
SG&A to Sales
2005 -0,141 -0,152 -0,054 12006 0,082 -0,111 0,155 12007 -0,057 -0,248*** 0,048 12008 -0,024 -0,263*** 0,148** 12009 -0,011 -0,039 0,177** 1
This table demonstrates the years 2005 and 2006 size and reputation have a positive relation. Larger
companies have higher reputation indices, which are conform the legitimacy and stakeholder theory.
Larger companies face more public attention and more pressure to reach a high reputation. The
connection is not very strong, but still some connection between the two variables exists in the years
2005 and 2006.
Between financial performances and reputation a relation is observable for all years. This relation is
positive. This relation implies financial performances of a company have a positive influence on
reputation. When a company has better financial results the reputation index of this company improves.
The value of the relation improves over time from 0,236 till 0,365. This implies an increase of the
relation between financial performances and reputation over time. Financial performances become
stronger criteria for reputation.
The above discussed correlation coefficients measure the connection between two continuous variables.
In the designed methodology qualitative variables are also included. To investigate the connection
between reputation (continuously) and CSR report level, region and industry (all qualitative variables)
the One Way Anova test should be used. From the results of One Way Anova no statements are
observable of the direction of the relation.
When testing the relation between reputation, CSR report level, region and industry, the relation
between the qualitative variables in common on the reputation, is taken into consideration. For the
region variable first the relation between region in common and reputation is tested. The outcomes
show whether region has an influence on reputation. Thereafter is tested if the different categories of
the qualitative variables have a connection with the reputation. This implies for the region variable,
whether a specific region has a relation with the reputation.
In table 8 the outcomes are shown. The provided data of the test are the p-values. From the p-value a
relation can be observed between the reputation and the variable. An actual relation is observed when
the p-value reaches the significant value of 10%. The p-values marked with a * shows a connection
between the two variables. Also in this table a distinction is made in the levels of significance.
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Table 8: p-value of the outcomes of the One Way Anova test.
2005 2006 2007 2008 2009CSR Report Level
Common 0,211 0,680 0,065* 0,969 0,714A+ 0,568 0,084* 0,063* 0,562 0,252
A - 0,760 0,174 0,979 0,285B+ 0,133 0,837 0,948 0,659 0,897
B 0,754 0,308 0,393 0,892 0,983C+ 0,066* 0,504 0,687 0,616 0,872
C - 0,631 0,086* 0,981 0,917U 0,185 0,159 0,019** 0,307 0,129IA 0,289 0,716 - - -CI 0,943 0,912 - - -
RegionCommon 0,005** 0,000*** 0,630 0,001*** 0,000***
Africa 0,639 0,807 0,674 0,875 -Asia 0,203 0,002** 0,923 0,000*** 0,000***
Europe 0,013** 0,013** 0,092* 0,301 0,333Latin America 0,633 0,904 0,747 0,598 0,303
Northern America 0,000*** 0,000*** 0,167 0,001*** 0,000***Oceania - - - - -
IndustryCommon 0,158 0,359 0,013** 0,320 0,017**Oil & Gas 0,436 0,426 0,186 0,013** 0,009***
Basic Materials 0,186 0,130 0,008*** 0,488 0,861Industrials 0,620 0,080* 0,410 0,492 0,805
Consumer Goods 0,107 0,316 0,569 0,381 0,127Health Care 0,809 0,728 0,969 0,463 0,307
Consumer Services 0,816 0,887 0,752 0,872 0,088*Telecommunications 0,336 0,858 0,017** 0,963 0,851
Utilities 0,508 0,930 0,505 0,646 0,190Financials 0,047** 0,360 0,858 0,169 0,064*
Technology 0,037** 0,426 0,010** 0,329 0,057*
*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1
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Observed from the outcomes presented in table 8, evidence is found for a relation between CSR report
level and the reputation index of 2007. This is in conformity with the agency theory, legitimacy theory
and the stakeholder theory. The level of the CSR report has an influence on the reputation. When the
CSR report is conform specific guidelines the stakeholders are provided to more reliable information.
This decreases the agency problem and the information asymmetry, which is valued by the stakeholders
in an increase of the reputation. The relation between CSR report level and reputation is also caused by
the legitimacy theory. Due to a disclosure of a CSR report, the company achieves legitimacy of the
public, this results in an improvement of reputation. The relation between CSR report level and
reputation is in conformity with the stakeholder theory. The environmental and social related
stakeholders of a company prefer a high CSR quality report. Management will react on this demand and
an increase of the company’s reputation follows.
From this table a connection between some of the specific CSR reporting levels and the reputation is
observable. The A+ level has in 2006 and 2007 a significant relation with the reputation. In 2005 the C+
level also has a relation with the reputation. Besides the A+ level in 2007, the C and U level also have a
significant relation on the reputation.
With the One Way Anova test is investigated that a relation between region and reputation is
observable in the years 2005, 2006, 2008 and 2009. This confirms different circumstances are
influencing the reputation. Circumstances are different among certain regions, and have an influence on
the reputation, when the relation of the different regions on the reputation is taken into account. The
outcomes show Asia has a significant connection in 2006, 2008 and 2009. For Europe a relation is
investigated in the years from 2005 till 2007. The relation between Northern America and the reputation
is significant for all years except 2007. For Oceania too few data was available to examine the relation
with reputation.
A relation between industry and reputation is observable in 2007 and 2009. This implies the difference
in industry has a relation with the reputation. The oil & gas industry has a relation with the reputation in
2008 and 2009. The basic materials and the telecommunications industries both have just in 2007 a
relation with reputation. Industrials only have a connection with reputation in 2006. Consumer services
have a relation with reputation in the year 2009. A relation between the financial industry and
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reputation is observable in the years 2005 and 2009. For technology the relation with the reputation is
investigated in the years 2005, 2007 and 2009. The industries consumer goods, health care and utilities
have no relation with reputation.
6.2.2 Regression
The regression results are based on the developed methodology of chapter 5. The regression analysis is
provided by testing the basic and extensive model. In the extensive model all control variables are
included. In the basic model only the CSR report level is used as independent variable to predict
reputation. To test the sub hypotheses, the represented control variables should be implemented in the
basic model. By including the control variables in the basic model the influence of the control variables
on the relationship between CSR report level and reputation is tested. In the extensive model all control
variables are included, in this model is tested if all variables have an impact. If in the basic model an
influence of the control variable on the relationship is proved, this relation is also proved in de extensive
model.
First, the outcomes of method 1 are described. This method takes the general influence of the
qualitative variables into consideration. The second method takes the influence of the different
categories inside the qualitative variables into considerations. The second method is discussed after the
first method.
Method 1
The first regression results are shown in table 9. In this regression the influences of variables on the
reputation is shown. For the qualitative variables: CSR report level, region and industry in this
regression, no separation has been made on the different categories inside the qualitative variables. This
implies that only the influence of CSR report level, region and industry are tested. In this developed
regression no statements can be made on the influence of one specific CSR report level, region or
industry.
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Table 9: Regression results (dependent variable: reputation)
2005 2006 2007 2008 2009Constant 3,114** 4,332*** 4,020*** 3,392*** 3,628***
CSR Report Level 0,018 0,037 0,058 0,040 -0,029Size 0,556** 0,215 0,397** 0,357** 0,389**
Fin. Performances 0,051** 0,024 0,015 0,047*** 0,037***SG&A to Sales -0,181 -0,331 -0,356 -0,160 -0,176
Region 0,167 0,324*** 0,160* 0,298*** 0,235***Industry 0,022 0,021 0,070 0,000 0,021
Anova 0,012 0,001 0,012 0,000 0,000
R squared 0,245 0,256 0,137 0,359 0,226VIF 1,211 1,254 1,169 1,133 1,172
*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1
To examine if a variable has influence on the reputation, the p-value should be less than the significant
value of 10%. When the beta (coefficient) has a negative value, the variable has a negative value on the
reputation and a positive value of beta investigates a positive influence. The anova value of each year is
below the significant level. This proves the regression model measures the dependent variable in a good
way. The anova value is a score for the entire model, not for the prediction value of one variable. The R
squared value represents the variance in the reputation index which can be explained by the selected
variables. In this model the value varies from 0,137 (2007) till 0,359 (2008). The R squared values are
relatively high, but there is space for improve improvement, there might be other variables (which are
not included in the model) which also have influence on the reputation index. In the regression results
of all years no collinearity in the data exists. The VIF score is between 0,2 and 10 this implies the
variables which are included have no correlation with each other.
Resulting from this model, CSR reporting level has no influences on reputation. The p-values of the years
2005 up till and including 2009 are higher than the significant level of 10%. It is proved that the beta of
the CSR reporting level has no predictive value on the reputation. When the basic model is tested for
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2009, a significant positive influence of the CSR quality level on the reputation is observed. The R
squared is very low in this model, therefore can be assumed that other variables should be included to
provide a better prediction of the reputation. The positive influence of CSR reporting level on the
reputation for 2009 is in conformity with the agency theory, information asymmetry, legitimacy theory
and stakeholder theory.
For all years, except 2006, the size coefficient has a significant influence on the reputation. And when
the size variable is included in the basic model an influence on the reputation is proven in the years 2005
and 2006. In the model, where size is included in the basic model, the R squared increases, which
implies a better prediction of the reputation index. These results prove size has an influence on the
relationship between the CSR report level and the reputation. Larger companies are dealing with a more
public attention. A CSR report can be useful for satisfying the public of the large company. The CSR
report provides more transparency, and therefore the information asymmetry and the agency problem
reduce. The public appreciate this reduction, which results in an improvement of the reputation. This is
conforming the legitimacy and stakeholder theory. In this model the degree of the size coefficient varies
for 0,215 up till 0,556.
In the years 2005, 2008 and 2009 a significant influence of the financial performances is observable. This
influence is positive and very small. When the financial performance variable is included in the basic
model, a positive influence is observable too. The R squared increases as well, which indicates financial
performance has a positive influence on the relation between CSR report level and reputation. This
confirms the expectation that better financial performing companies have more financial resources
available to disclose a well qualified CSR report. Also better financial performers having more influences
on the society. The bigger influence on the society of better financial performers results in an
improvement of reputation.
From this regression is proven that general selling & administrative expenses to sales have no influences
on reputation. When this control variable is included in the basic model, no influence is obtained. The
general selling & administrative expenses to sales have no impact on the relationship between CSR
reporting level and reputation.
From the outcomes of method 1, is proven that regions have an influence on reputation, except for
2005 this influence is observable. When regions are included in the basic model an influence on the
relationship between CSR report level and reputation is observable. For the year 2007 this influence on
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the relationship is not obtained. The influences of the region is positive and of middle degree. Overall
the findings proved an influence of region on the relation between CSR report level and reputation.
In table 9, no influence of industry on the reputation is observable, for all years. When the basic model is
extended with the industry control variable no influences is proven. There is no influence of the industry
on the relation between CSR report level and the reputation.
Method 2
Above method 1 is described, in this method the general influences of the qualitative variables are
tested. But with method 1 the influences of the specific categories (which are inside the qualitative
variable) are not observable, therefore method 2 should be used. In this model dummy variables are
included. The dummy variables measure the difference in influence with the reference variable. The
differences in influences of the dummy variables are observed from the p-value. The degree of different
influences is observable from the coefficient. The IA level is the reference variable for the CSR report
levels, for the regions Europe is the reference variable and for the industry the consumer goods is the
reference variable.
On the next page table 10 is displayed, in this table the regression results over 2005 up till and including
2009 are shown. In this method the single variables are included in the basic model. When including one
variable in the basic model the influence on the relationship of this variable is directly tested. The
outcomes of the influence of the variable, observed from the basic model, does not differ from the
influence of the variable observed from the model where all variables are included.
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Table 10: Regression results (Categorical variables are included)
2005 2006 2007 2008 2009Constant 2,139 4,448*** 4,875*** 5,039*** 3,130***CSR Report Level
A+ 0,396 -0,609 0,375 -0,171 -0,287A - -0,158 0,864 0,177 -0,049
B+ -0,574 -0,521 0,479 -0,236 -0,080B -1,335 -1,085* 0,240 -0,107 -0,019
C+ 1,793* -0,189 -0,010 -0,179 -0,510C - -1,361* -0,172 -0,015 0,042U 0,447 -0,353 0,675 0,122 -0,210IA EX EX - - -CI 0,032 -0,611 - - -
Size 0,635** 0,300 0,220 0,121 0,475**Financial Performances 0,090*** 0,041 0,013 0,049*** 0,040**SG&A to sales 0,266 0,023 -0,157 -0,027 0,204Region
Africa 1,015 0,734 - - -Asia -0,018 -0,169 -0,048 0,085 -0,465*
Europe EX EX EX EX EXLatin America 0,658 0,455 1,101* 0,765 0,708*
Northern America 0,602* 0,895*** 0,109 0,158 0,434**Oceania - -1,028 -0,168 - -1,298
IndustryOil & Gas -0,384 0,298 0,313 0,720* 0,735**
Basic Materials 0,843 0,116 -0,468 0,214 0,481*Industrials 0,684 1,000** 0,340 0,160 0,320
Consumer Goods EX EX EX EX EXHealth Care -0,782 -0,064 0,175 0,007 -0,091
Consumer Services 0,255 0,207 0,374 0,164 -0,215Telecommunications 1,382 1,058 -0,938* 0,404 0,037
Utilities 0,431 0,064 0,734 0,202 1,133*Financials -0,044 0,606 0,383 0,126 -0,003
Technology 0,085 0,294 0,728** 0,229 0,689***
Anova 0,121 0,012 0,024 0,002 0,000R squared 0,456 0,491 0,308 0,289 0,381
VIF 1,581 1,603 4,012 1,322 1,401
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*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1
When focusing on the anova, all years except 2005, provide a reliable model. The value of anova for
2005 is above the used significant level of 10%, which implies the designed model for 2005 is not an
accurate prediction of reputation. The R squared is relatively high for all years, this implies that when
there is a change in the dependent variables, the change is observable in the reputation. The R squares
of this method are higher compared to the first method. The included categorical variables in the second
method have an improved prediction on the reputation index. Still there is space for other variables to
increase the predictability of reputation index. It is remarkable that the VIF score is higher in the second
model. The collinearity of the second model is higher, this implies the results are less reliable compared
to the first model. In 2007 there is much collinearity between variables, this is caused by the categorical
variables of CSR report level.
Following the results of table 10, the different CSR report levels have less different influences on
reputation. Only in the year 2005 and 2006 difference in influences are observable. There is proven that
C+ level in 2005 and the B and C level in 2006 have different influences on the reputation. The C+ level
has, in 2005, a significant positive influences and the B and C level have a significant negative influence,
compared with the IA level. The degree of different influences is pretty high, the C+ level in 2005
improved the reputation index with 1,793 in comparison with level IA. Besides the different influences of
C+ in 2005, B and C level in 2006, there is no proof that the different CSR report levels have a different
influence on reputation.
In the results evidence was found that size has an influence on reputation. In the results of 2005 and
2009 a p-value less than 0,01 is observable. The size of a company has a positive influence on the
reputation. When the size control variable is included in the basic model, the R squared improves. But
when the size variable is included only in the years 2005 and 2009 a significant influence is observable.
Also only in the years 2005 and 2009 the size has a significant influence. In these years the CSR report
levels B+, U and C+ have a significant different influence on the reputation index, compared with the IA
level.
In the years 2005, 2008 and 2009 there is a significant influence of the financial performances on the
reputation index observable. For these years is proven that a higher return on assets (with an amount of
one) increased the reputation index with 0,09;0,049 or 0,04. When the financial performances variable
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is included in the basic model, a significant influence for the years 2005, 2008 and 2009 on the
reputation index is proven. The R squared increases in the basic model when the variable of the financial
performance is included. Including the financial performances variable in the basic model has also
results in a different influence of the B+ and U level in comparison with IA level.
For the general selling & administrative expenses to sales, no evidence for a significant influence on the
reputation was found. When including this variable in the basic model, no influence was found. This
implies that the general selling & administrative expenses to sales, have no influence on reputation and
no influence on the relationship between CSR reporting and the reputation.
Following the results of table 10, it is proven that regions have a significant influence on the reputation.
For 2005, 2006 and 2009 it is proven that companies from Northern America have a positive different
reputation than companies from Europe. In 2007 and 2009 Latin America has a significant different
influence on reputation compared to Europe. The reputation index is higher in 2007 and 2009 for
companies from Latin America compared to companies from Europe. When Asia is taken as reference
category (not showed in table) it is proven that Europe has a significant different positive influence on
reputation in 2009. When the different regions are included in the basic model, evidence is found that
regions have an influence on the relationship between CSR report level and reputation. These results
prove differences exist in the influence of regions. Northern America, Latin America, Asia and Europe
have different influences on the reputation. When looking at specific regions, evidence is found that the
countries USA, Brazil, Finland, Germany, Switzerland and the United Kingdom have a significant different
influence.
When focusing on the results of the industry categories evidence is found differences exist in the
influence of industries on the reputation index. The differences in influence are not observable in 2005.
From 2006 up till and including 2009 the different influences among industries are observable, but few
industries differ significantly from the consumer goods. In 2006 only the industry type industrials, has a
significant different influence on the reputation index. In 2007 telecommunications and technology has
a significant different influence on the reputation index, compared to consumer goods. In comparison
with consumer goods telecommunications has a negative influence on the reputation index and
technology industry improves the reputation index. Oil & Gas industry has, in 2008, a significant
different influence on the reputation index compared to consumer goods. Companies in the oil & gas
industry in 2008 have higher reputation index than companies in the consumer goods industry. In 2009
companies operating in the oil & gas, basic materials, utilities and technology industry are facing a
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significant different influence on reputation index than companies operating in the consumer goods.
These companies operating in the oil & gas, basic material, utilities and technology have a higher
reputation index than the consumer goods. When only the industry variable is included in the basic
model, also less evidence is found that different regions have a different influence on the reputation
index. Also the R squared improves little, when regions are included in the basic model. This implies that
the industry has less influence on the relationship between CSR quality and reputation.
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Chapter 7 ConclusionIn this chapter the outcomes of the research are summarized. The first paragraph discusses the main
findings of the research. Thereafter the implications for the scientific world, companies and society are
discussed. The limitations of this paper and opportunities of further research are discussed in the third
paragraph.
7.1 Discussion
In this paper the relationship between CSR reporting and reputation is investigated. In prior research
different impacts of CSR already have been researched. The financial impacts are already well
established, but there is still room available to investigate the impact of CSR on society and
stakeholders. Reputation is a measurement to investigate the effect of CSR on society. The society is
affected after a CSR report. With this report society receives more CSR information about the company.
As a result of the CSR report more transparency is provided. When the CSR report is of high quality,
stakeholders are provided with more reliable information. It is to be expected that society will value a
high quality of CSR reporting. The agency theory explains that the information asymmetry is reduced
after the CSR report. Stakeholders will value this, because stakeholders are provided with more
transparency. The legitimacy theory and stakeholder theory explain that companies act in favor of
stakeholders’ interest to obtain legitimacy. Stakeholders are demanding high quality CSR reports, which
increase transparency, thereby providing stakeholders with more reliable information. The willingness of
management to provide a high quality CSR report is dependent on the power among different
stakeholders. This implies the expectation that CSR reporting quality has a positive influence on
reputation.
Prior research of Clarkson et al. (2010) found evidence about the positive influence of CSR reporting on
public sentiment. In this study the five most polluting industries from the United States are included. In
the study of Clarkson et al. (2010) the GRI framework is used as proxy to investigate CSR reporting. The
Janis Fadner coefficient is used as proxy for the reputation. This is not the most accurate measurement
for reputation, the coefficient assumes that reputation is equal for all companies when the same
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number of positive and negative environmental articles is published. Also it is interesting to investigate
the impact of CSR reporting quality on reputation for all types of industries.
In this paper CSR reporting quality is measured with the CSR report level provided by the GRI Report List.
From this list the application levels of CSR reports are observable, the report levels are A+, A, B+, B, C+,
C, U, IA and CI. These levels contain the degree of conformity with CSR reporting guidelines. The
reputation is measured with the reputation index, this index contains nine different components. The
index is composed by directors, security analysts and executives of international companies. Combining
the two databases resulted for the period 2005 till 2009 in 85, 106, 138, 167 and 175 data points
respectively. The tested relation of CSR reporting quality and reputation is also dependent on other
variables. These variables are size, financial performances, expenses to selling general and
administration, region of company and the industry where the company operates.
The impact of CSR report quality on reputation is tested with the correlation and the regression
Correlation and regression makes use of different variables, the dependent variable is reputation. The
independent variables are CSR reporting level, financial performance, size, percentage of selling general
and administrative expenses to sales, region of company’s headquarter and industry where the
company operates. Correlation measures the relation between reputation and an independent variable.
With the regression the influence of more independent variables are measured on the reputation. The
results show that there is no impact of CSR report quality on reputation. In this paper no evidence is
found that a relation exists between CSR reporting quality and reputation. Public does not observe the
quality of a CSR report. The CSR reporting quality is not incorporated in the reputation index. Evidence is
found about the influence of size on the relation between CSR reporting quality and reputation. The
found evidence of the size influence is small, it is not observed for all years. Financial performances do
have an influence on the impact of CSR reporting quality on reputation. The reputation index is
dependent on financial performance. When a relation between CSR reporting quality and reputation
exist, financial performances increase the relationship. The percentage of general selling and
administrative expenses to sales is a measurement to observe the degree of service expenses of sales.
There is no evidence found, that general selling and administrative expenses to sales have an influence
on the relation between CSR reporting quality and reputation. However, regions in which the
headquarter of the company is seated do have an influence on the reputation index. A difference exists
in the reputation index of companies from different regions. Evidence is found that Northern America
has a significant different influence than Europe on the reputation index. Asia and Latin America also
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have a significant different influence than Europe on the reputation index. Asia has a negative influence,
Northern America and Latin America have positive influences. The results of regions implies that
difference between region exist on the relation between CSR reporting quality and reputation. No
significant different influences among industries are observable on the reputation index. Industries have
no impact on the relation between CSR reporting quality and reputation.
7.2 Implications
The findings of this paper contribute to the scientific world, as well as to companies and society. No
relationship between CSR reporting quality and reputation is observed in this paper, but this outcome
sheds new lights on the study of Clarkson et al. (2010).In the study of Clarkson et al. (2010) a relation is
found between CSR reporting and public sentiment. But from this paper contradictory evidence is found,
because no relationship is found between CSR reporting quality and reputation. Former studies that
investigate the relation between CSR reporting and reputation, did not incorporate the impact of
financial performances, percentage of general selling and administrative expenses to sales, regions or
industries. The found evidence that suggests an impact of financial performances and regions on the
relationship contributes to the scientific world.
In this paper it is proved that CSR reporting has no impact on reputation, but when stakeholders are
putting more attention on CSR reporting, perhaps other results will be observed. Until now stakeholders
do not incorporate CSR reporting in their impression of companies. When more attention is given to
CSR, stakeholders will become more familiar with CSR reporting, which may result in an impact on the
reputation. CSR reporting provides important company information, when a CSR report is of high quality
more transparency is provided. This paper provides contribution to the society because there is proved
that stakeholders should put more attention to CSR reporting. CSR reports provides transparency into
the company’s information, society can benefit from this transparency.
The findings of this paper provide benefits for companies, because it is investigated if certain variables
have an influence on the reputation index. It is proven that size, financial performances and regions
have an impact on the reputation. Awareness of companies is provided on the influence of size, financial
performance and region on reputation.
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7.3 Limitations and further research
The data of the reputation is based on the reputation index that is provided by the Fortune 500. This
reputation index is compiled by directors, security analysts and executives of international companies,
which is not an accurate representation of total society and all stakeholder sentiment. It is difficult to
find a database that represents the reputation index of companies that is representative of the
impression of total society. But maybe in the future ways are found, to set a proxy for reputation which
contains total society’s sentiment. For future research it is defiantly to find a proxy for reputation, which
finds another public than directors, security analysts and executives. Interesting is to compile the
reputation on judgments of environmental and social foundations. A foundation as Greenpeace has
much knowledge about environmental related performances of companies. An idea is to investigate if
the judgment of, for instance Greenpeace is affected by CSR reporting. It is also interesting to base the
reputation on costumers. In the researches of Brown et al. (1997) and Ittner et al. (1998) the reputation
is already based on customer satisfaction, but customer satisfaction is compiled of the evaluation of
single products. The company is more than its products and also companies exist that produce more
than one product. An opportunity for future research is to compile reputation on customers’ satisfaction
on company level and not on product level.
The application levels of 2005 and 2006 are based on the G2 and G3 guidelines. The applications levels
of 2007, 2008 and 2009 are based on the G3 guidelines. This means that two different measurements of
CSR report level are used in this paper. The comparability of results of all years decrease, when in 2005
and 2006 different guidelines are the basis of application level. But when the application level that are
conform the G2 guidelines are excluded, the sample becomes very small.
Another limitation is that in the total sample contains only a few companies that operate in Africa and
Oceania. So it is not possible to observe the influence of these continents on the relation between CSR
reporting quality and the reputation. This implies that for future research the sample should be
increased with companies from Africa and Oceania.
This study focuses on CSR reporting. It is also interesting to focus on the CSR performances and their
influence on the content of a CSR report. In this paper evidence is found that directors, security analysts
and executives do not observe the CSR report level. But maybe they do observe CSR performances.
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Appendix A: Companies included in sample
R.L. = CSR Report LevelR.I. = Reputation Index
2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. 3M Oceania Industrials C+ 7,43 C+ 6,96 C+ 6,87ABB Europe Industrials IA 5,50 U 5,65 U 6,62 B+ 5,85 B 6,18Abbott Northern America Health Care CI 6,66 CI 6,75 U 6,55 U 6,78 U 6,68ABN AMRO Holding Europe Financials IA 5,56 A+ 4,97Accenture Northern America Industrials C 7,35Advanced Micro Devices Europe Technology B 4,43Aegon CI 5,36 B 5,31 B 5,26 U 4,69Aeon Asia Consumer services U 5,34 U 4,78Aisin Seiki Asia Consumer goods U 5,19Akzo Nobel Europe Basic Materials A+ 4,57 C+ 5,54Alcan Northern America Basic Materials U 7,41 U 7,94 U 6,29Alcatel Europe Technology CI 5,60Alcoa Northern America Basic Materials U 6,78 U 6,69 U 7,05All Nipon Airways (ANA) Europe Consumer services B+ 4,85Allianz Europe Financials IA 5,84 B 5,85 B 6,04 B 6,20 B 5,70Allstate Northern America Financials U 5,91American Electric Power Northern America Utilities B 5,85 B 6,03 U 7,85AMR Northern America Consumer services C 5,20 C 4,57 C 4,06Anglo American Europe Basic Materials CI 5,10 A+ 5,04 A+ 5,95Anheuser-Busch Northern America Consumer goods U 8,00 U 8,17 B 7,97
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2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Apple Northern America Technology U 7,40 U 7,07Applied Materials Northern America Technology U 6,77 C 6,68Arcelor Mittal Europe Basic Materials U 7,74 U 6,89 U 6,78Asahi Breweries Asia Consumer goods U 4,18 U 4,20Asahi Kasei Asia Basic Materials U 3,65 U 5,10Ashland Northern America Basic Materials A+ 4,47Assicurazioni Generali Europe Financials B 4,49 B 4,89AstraZenecu Europe Health Care B+ 6,18AT&T inc. Northern America Telecommunications C 7,05 C 6,63Autodesk Northern America Technology C 6,63Avon Products Northern America Consumer Goods C 5,82Baker Hughes Company Northern America Oil & Gas IA 6,62 A+ 6,61 A+ 6,01Bank of America Northern America Financials U 7,59 B 6,69Barclays Europe Financials CI 5,87BASF Europe Basic Materials IA 7,42 A+ 6,93 A+ 6,89 A+ 7,06 A+ 7,04Baxter International Northern America Health Care B 6,74 B+ 6,71 B+ 6,78Bayer Europe Basic Materials B+ 6,53 A+ 5,70 A+ 6,29 A+ 5,53 A+ 6,87Best Buy Northern America Consumer services U 7,20 U 6,63 U 6,63BG Group Europe Oil & Gas U 6,05BHP Billiton Oceania Basic Materials A+ 6,07 A+ 6,39 A+ 5,90 A+ 6,92BMW Europe Consumer Goods B+ 7,38 B+ 7,88 A 6,50BNP Paribas Europe Financials CI 5,77 U 5,96 U 4,89 U 5,03Bombardier Northern America Industrials B 5,47 U 5,91BP Europe Oil & Gas C+ 8,17 C+ 7,32 A+ 6,60 A+ 6,84 A+ 6,63Ball Northern America Industrials B 6,50Becton Dickinson Northern America Health Care U 6,90Black & Decker Northern America Consumer Goods U 5,91
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Boise Northern America Basic Materials IA 5,29 U 3,86 2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Bridgestone Asia Consumer Goods C 5,34British American Tobacco Europe Consumer Goods A+ 7,71 A+ 7,18Bristol-Myers Squibb Northern America Health Care B+ 5,23 B+ 4,98 B+ 5,44 B+ 5,40Brown-Forman Corporation Northern America Consumer Goods C 4,14BT Group Europe Telecommunications IA 5,90 IA 6,59 A+ 6,47 A+ 6,46 A+ 5,76Bunge Latin America Consumer Goods CI 7,14 A+ 7,14 A+ 7,08 A+ 7,00 A+ 6,55Cadbury Schweppes Europe Consumer Goods CI 5,65Canon Asia Technology CI 6,88 U 6,56 U 6,05 U 6,12Carrefour Europe Consumer Services IA 6,91 B+ 6,82 U 7,09 B+ 6,35 B+ 5,65Chevron Northern America Oil & Gas CI 7,92 U 7,80 U 7,62 U 7,02China Mobile Communications Asia Telecommunications U 5,06 B+ 5,86 B+ 5,41 B+ 5,25Chubb Northern America Financials U 7,09Cisco Systems Northern America Financials U 7,29 U 7,73 U 7,82 U 7,36 U 7,83Citi Group Northern America Financials CI 7,40 U 6,87 B 5,54 B 4,54 B 3,41Coca-Cola Northern America Consumer Goods B 6,09 B 6,09 C 6,90 B 6,84 B 6,98Coca - Cola Enterprises Northern America Consumer Goods B 5,88 B 5,02 B 5,98Colgate-Palmolive Northern America Consumer Goods U 6,81 U 6,76ConAgra Foods Northern America Consumer Goods B 5,36Conoco Philips Northern America Oil & Gas U 6,80Constellation Energy Northern America Utilities U 4,46Continental Northern America Consumer Goods U 7,80Credit Suisse Europe Financials CI 5,53 U 5,85 U 6,54 A 6,53 A 6,63Cummins Northern America Industrials U 6,94 U 6,49 C 6,25Daimler Chrysler Europe Consumer Goods CI 5,94Darden Restaurants Northern America Consumer services U 6,21Dean Foods Northern America Consumer Goods U 4,71 U 4,71
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2005 2006 2007 2008 2009
Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I.
Delhaize GroupEurope Consumer Services B+ 6,13
DellNorthern America Technology CI 6,12 C 6,03 B 5,58 B 5,62 B 6,14
Delta AirlinesNorthern America Consumer Services C 6,31
DensoAsia Consumer Goods IA 6,38 U 6,26 U 5,62
Deutsche BankEurope Financials IA 4,69 A 5,10 A 6,03 A 5,59
Deutsche Post (DHL)Europe Industrials B+ 5,50 B+ 5,41 B+ 5,17
Deutsche TelekomEurope Telecommunications CI 5,97 A+ 5,13 A+ 5,60 A+ 5,28
Dexia GroupEurope Financials U 4,75
DiageoEurope Consumer Goods A+ 4,66 A+ 5,82 A 5,40
Dow ChemicalNorthern America Basic Materials A+ 6,43 A+ 5,64 A+ 6,11
DuPontNorthern America Industrials U 6,91 B 7,03
Duke EnergyNorthern America Utilities B 7,16 B 6,95 B 6,87 B 5,88 B 6,11
E.ONEurope Utilities IA 6,79 A+ 5,82 B+ 6,20
EADSEurope Industrials B+ 7,06
Eastman Chemical Company Northern America Basic Materials A+ 5,01Eastman Kodak Company
Northern America Consumer Goods A+ 5,54 A+ 5,67
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EdisonEurope Utilities C+ 6,46 B+ 7,92 A+ 6,96
El Paso CorporationNorthern America Oil & Gas C 6,59 C 5,94
ElectroluxEurope Consumer Goods CI 6,03
EMCEurope Technology B 6,86
EnCanaNorthern America Oil & Gas CI 5,67 B+ 6,32 B+ 5,80 B+ 6,46
ENI S.p.A.Europe Oil & Gas U 5,70 B+ 5,88 B+ 5,92
ExelonNorthern America Utilities U 7,11 U 6,35
Exxon MobileNorthern America Oil & Gas CI 8,24 U 8,17 U 7,95 U 7,79 U 7,36
FiatEurope Consumer Goods CI 3,52 CI 4,38 B+ 3,56
FinmeccanicaEurope Industrials U 4,93
FPL GroupNorthern America Utilities U 6,80
FluorNorthern America Utilities B 7,15 B 6,24
2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Ford Motor Northern America Consumer Goods IA 5,09 A+ 5,21 A 5,06 A 3,89 A 3,78Fortis Europe Financials B+ 5,01 B+ 5,40France Telecom (-Orange) Europe Telecommunications U 5,41 B+ 5,66 A+ 5,16Freeport-McMoRan Copper & Gold Northern America Basic Materials IA 5,21 U 5,25 A+ 5,81Fujitsu Asia Technology U 4,92 B+ 5,06Gap Northern America Consumer Services U 5,92 U 6,28Gazprom Europe Oil & Gas B 5,62General Electric Northern America Industrials IA 8,29 A+ 8,24 A 8,40 A+ 7,44 A 7,07
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Glaxo SmithKline (GSK) Northern America Health Care CI 6,58 CI 6,68 U 6,33 U 6,48 U 5,94H.J. Heinz Northern America Consumer Goods B 5,29 B 4,95Halliburton Northern America Oil & Gas C 6,03 A 7,40Hanwha Chemicals Asia Basic Materials A+ 3,35Heineken Europe Consumer Goods CI 5,48 U 4,54 U 5,59 U 4,99Henkel Europe Consumer Goods CI 5,03 U 6,03 B 5,25 B 7,12 B 5,79Herman Miller Northern America Consumer Goods B 7,83 B 6,39Hess corporation Northern America Oil & Gas B+ 5,74Hewlett - Packard Northern America Technology CI 7,08 B 5,56 B 7,38 B 7,04 B 7,74Hitachi Asia Industrials U 6,14 C 5,86 B+ 5,38Hochtief Europe Industrials B+ 6,48 B+ 6,62HSBC Holdings Europe Financials CI 6,92 U 6,50Hyundai Motor Asia Consumer Goods IA 5,39 A+ 4,66 A+ 7,28 U 4,41 U 4,49ITT Industries Northern America Industrials C 7,09 C 5,92Imperial Chemical Industries Northern America Oil & Gas CI 4,64Imperial Tobacco Europe Consumer Goods B+ 6,68 B+ 6,74 B+ 5,81ING Group Europe Financials U 6,16 U 6,15 A+ 5,63 A+ 4,39Ingersoll-Rand Northern America Industrials CI 6,96 U 6,51 B 6,37 B 6,09 B+ 5,84Intel Northern America Technology IA 7,88 IA 7,12 B+ 6,98 B 7,57 A 7,96IBM Northern America Technology A 7,57 A 7,50 A 7,55 A 7,60
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2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Jabil Circuit Europe Industrials C 4,31 C 4,82Jacobs Engineering Grp. Northern America Industrials U 6,32Johnson & Johnson Northern America Health Care CI 7,64 U 7,53 U 6,95 U 7,31 U 6,67Johnson Controls Northern America Consumer Goods CI 7,03 CI 6,87 A 6,50 A 6,39 A 6,26Jones Lang LaSalle Northern America Financials U 7,16 U 6,27Juniper Networks Northern America Technology A 7,11 A+ 6,65 A+ 5,76KAO Corporation Asia Consumer Goods CI 5,26 CI 5,36 U 5,58KB Home Northern America Consumer Goods U 7,30 U 6,58Kellogg Northern America Consumer Goods B 6,39 B 6,43Kimberly - Clark Northern America Consumer Goods U 6,34 U 6,09Kingfisher Europe Consumer Services B+ 5,17 B+ 6,48Kirin Brewery Asia Consumer Goods U 4,31 U 4,58Korea Gas Corporation Asia Utilities B+ 6,24Lafarge Europe Industrials A+ 5,22Lenovo Group Asia Technology U 4,77 U 5,21Lexmark International Northern America Technology B 5,68LG Electronics Asia Consumer Services CI 6,39 CI 6,14 U 6,41 B+ 5,77 U 5,79Liberty Mutual Insurance Group Africa Financials CI 5,96 B+ 6,42 B+ 6,07 B+ 5,93Linde Europe Basic Materials C 4,53 B 4,74 U 4,75 B+ 5,97L'Oreal Europe Consumer Goods CI 7,26 CI 7,16 U 7,25 U 6,93 B 6,86Louisiana-Pacific Corporation Northern America Industrials A+ 4,20L.M. Ericsson Europe Technology U 6,93 B+ 6,93 B+ 5,91 A+ 6,37Manpower Latin America Industrials B 6,06Marathon Oil Northern America Oil & Gas U 6,60Marks & Spencer Europe Consumer Services U 6,90Masco Northern America Industrials B 5,24
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2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Mazda Motor Asia Consumer Goods IA 5,51 IA 6,03 U 4,34 U 3,76McDonald's Northern America Consumer Services U 7,72McKesson Northern America Consumer Services C 6,63Medtronic Northern America Health Care C 6,66 B 6,52Merck Germany Europe Health Care B 5,88 B 6,67MetLife Latin America Financials U 5,94 U 5,37 B+ 6,26 B+ 5,99 B+ 6,47Metro Group Europe Consumer Services CI 6,66 U 6,76Microsoft Northern America Technology U 6,37 U 6,54Mitsubishi Electric Asia Industrials U 5,71 U 5,48Mitsubishi Heavy Industries Asia Industrials U 5,82Motorola Northern America Technology CI 7,41 CI 7,60 U 7,16 U 5,09 U 4,58NEC Corporation Asia Technology CI 5,84 U 5,35 U 4,86 B 4,93Nestle Europe Consumer Goods C 8,08 B+ 7,63Newmont Mining Northern America Basic Materials A+ 5,70Nike Northern America Consumer Goods U 7,82 U 8,02 B 8,15Nissan Motor Asia Consumer Goods U 6,12 U 5,17 U 3,80Nokia Europe Technology U 7,80 U 6,96 A+ 6,94Norsk Hydro Europe Basic Materials CI 6,81 B+ 6,68 B+ 6,33Occidental Petroleum (Oxy) Northern America Oil & Gas U 7,89 U 8,04 U 7,27Office Depot Northern America Consumer Services CI 5,64 C+ 5,70 C+ 6,13 C+ 4,52 U 4,75Oji Paper Group Asia Basic Materials U 5,71PPG Industries Northern America Basic Materials C 5,46 C 6,96Pepsi Co Northern America Consumer Goods U 6,50 U 7,47 U 6,88Petrobras Latin America Oil & Gas CI 5,37 A+ 6,14 A+ 6,63Pfizer Northern America Health Care B 6,00 B 5,25POSCO Asia Basic Materials IA 6,41 U 6,04 U 6,48 U 6,72 U 6,37Protcer & Gamble Northern America Consumer Goods U 8,39 U 7,69 U 7,94
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2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. ProLogis Northern America Financials C+ 7,62 B+ 8,09 B+ 6,09PSA Peugeot Citroen Europe Consumer Goods B+ 4,28 A+ 4,39Qualcomm Northern America Financials C 7,04 C+ 7,16Reckitt Benckiser Group Europe Consumer Goods B 7,13Renault Europe Consumer Goods U 4,57 U 3,58Repsol YPF Europe Oil & Gas IA 4,99 A+ 4,75 A+ 5,89 A+ 5,76Reynolds American Northern America Consumer Goods U 7,26 U 7,01Ricoh Asia Technology B 5,63 B 5,23 C 5,22Rio Tinto Europe Basic Materials A+ 5,94 A+ 5,97 A+ 5,37 A+ 6,30Royal Ahold Europe Consumer Services C 5,74 B 5,42 B+ 5,44Royal Bank of Scotland Europe Financials IA 5,73 B+ 6,46 B+ 6,12Royal Dutch Shell Group Europe Oil & Gas A+ 7,22 A+ 7,17 A+ 7,28 A+ 7,55 A+ 7,05Royal Philips Electronics Europe Consumer Goods CI 6,79 IA 6,63 B+ 6,77 B+ 5,98 A+ 5,62RWE Europe Utilities A+ 6,38 A 5,87 U 5,89 A+ 6,54SABMiller UK Europe Consumer Goods CI 3,78 B+ 4,59 B+ 5,49 B+ 6,26Samsung Electronics Northern America Technology A+ 5,88 A+ 6,74SAP Europe Technology C 6,49 B+ 6,19 A+ 6,41Sanofi - Aventis Europe Health Care U 6,07 U 5,56 U 5,54Sara Lee Northern America Consumer Goods U 4,67 B 4,73 B 4,85SCA Group Europe Consumer Goods C 5,61Sempra Energy Northern America Utilities U 6,40 U 6,45Siemens Europe Industrials IA 7,32 U 7,19 U 6,98 U 6,40 A+ 6,12Smithfield Foods Northern America Consumer Goods B 6,34 B 5,13 B 5,45Societe Generale Europe Financials CI 5,66 U 4,64Solvay Europe Basic Materials U 4,42Sony Europe Consumer Goods U 6,53 U 6,49 U 7,01 U 6,30 U 6,29
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2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Southern Northern America Utilities U 6,55Southwest Airlines Northern America Consumer Services C+ 6,26Sprint Nextel Northern America Telecommunications U 4,11Starbucks Northern America Consumer Services CI 8,11 CI 8,09 B+ 8,12 B+ 6,88Statoil Europe Oil & Gas CI 6,31 U 6,50 U 6,72 A+ 6,42 A+ 6,59State Street Corp. Northern America Financials CI 6,35 B+ 6,63 B+ 6,86 B+ 6,23 B+ 6,29Steelcase Northern America Consumer Goods U 5,76Stora Enso Europe Basic Materials CI 6,65 CI 6,44 B+ 4,05Suez Environment Europe Industrials B+ 5,92Sumitomo Chemical Asia Basic Materials U 5,40Sumitomo Electric Industries Asia Industrials U 5,42 U 5,18Swiss Re / reinsurance Europe Financials U 6,18 U 6,21 U 6,18Target Northern America Consumer Services CI 6,66 U 6,90 U 6,92Technip Europe Oil & Gas B+ 6,41Telefonica Europe Telecommunications IA 6,40 A+ 6,40 A+ 6,04 A+ 6,47Teradata/Teredata Northern America Technology C+ 6,42Texas Instruments Northern America Technology CI 7,95 U 8,21 U 7,26 U 7,16 B 7,30Thyssen Krupp Group Europe Industrials U 6,69Time Warner Northern America Consumer Services CI 6,50TNT Europe Industrials IA 5,97 C+ 5,39 A+ 5,62 A+ 5,87 A+ 5,96Toshiba Asia Industrials IA 6,22 B 6,11 U 6,30 U 5,94 B+ 5,67Total Europe Oil & Gas CI 6,89 U 6,70 U 6,72Toyota Motor Asia Consumer Goods CI 7,51 U 7,86 A+ 6,25 A+ 5,20Tyco International Northern America Industrials U 5,32Tyson Foods Northern America Consumer Goods U 6,07 B 5,39U.S. Postal Service Northern America Consumer ServicesUBS Europe Financials CI 5,73 U 7,06 U 5,99 A+ 4,79Unilever Europe Consumer Goods CI 6,63 CI 6,46 B+ 6,10 B+ 6,55 B+ 6,52
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2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. United Parcel Servive (UPS) Northern America Industrials CI 8,17 B 8,42 B 7,39Vale Latin America Basic Materials A+ 6,31Vivendi Universal Europe Consumer Services CI 5,25 U 5,74 U 6,65 U 5,70Vodafone Group Europe Telecommunications IA 6,47 B+ 6,42 B+ 6,38 B+ 6,48 B+ 6,63Volkswagen Europe Consumer Goods A+ 5,09 A+ 6,75 A+ 5,22VOLVO Europe Industrials IA 5,85 U 6,27 U 6,24 B 4,50 B 3,80Wachovia Corp. Northern America Financials C 6,01Wal-Mart Stores Northern America Consumer Services C 6,54 B 7,29 B 7,14Weyerhaeuser Northern America Basic Materials IA 6,90 A 6,75 A 7,20 A 5,76 A 5,10Woolworths Oceania Consumer Services CI 4,84 A+ 4,82 A+ 4,57Wyeth Northern America Health Care CI 6,43 U 5,89Xerox Northern America Technology B 6,92 B 7,28 B 6,51
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Appendix B: Distribution CSR report levels over all variables 2005 (N = 85) 2006 (N = 106)CSR level A+ B+ B C+ U IA CI A+ A B+ B C+ C U IA CIFrequency 2 3 2 1 8 24 45 16 4 12 11 4 3 30 5 21Percentages 2,4 3,5 2,4 1,2 9,4 28,2 52,9 15,1 3,8 11,3 10,4 3,8 2,8 28,3 4,7 19,8Size (sales in million $) < 50.000 1,2 3,5 2,4 - 7,1 12,9 36,5 6,6 0,9 8,5 7,5 2,8 1,9 17,9 4,7 14,250.000 - 100.000 - - - - 2,4 11,8 9,4 4,7 1,9 1,9 1,9 - 0,9 4,7 - 4,7> 100.000 1,2 - - 1,2 - 3,5 7,1 3,8 0,9 0,9 0,9 0,9 - 5,7 - 0,9Financial Performances (ROA) < 0% - - - - - 1,2 - 0,9 - 0,9 - - - - - -0% - 10% 1,2 2,4 1,2 1,2 4,7 22,4 34,1 9,4 3,8 9,4 7,5 1,9 0,9 17,0 2,8 12,3> 10% 1,2 1,2 1,2 - 4,7 4,7 30,6 4,7 - 0,9 2,8 1,9 1,9 11,3 1,9 7,5SG&A expenses to sales < 15% 1,2 - - 1,2 2,4 12,9 17,6 6,6 0,9 0,9 0,9 1,9 0,9 9,4 - 4,715% - 30% 1,2 1,2 - - 4,7 8,2 14,1 2,8 0,9 3,8 4,7 0,9 1,9 13,2 2,8 3,8> 30% - 1,2 1,2 - - - 8,2 1,9 0,9 0,9 2,8 - - 0,9 - 6,6Unknown - - 1,2 - 2,4 7,1 12,9 3,8 0,9 5,7 1,9 0,9 - 4,7 1,9 4,7Regions Africa - - - - - - 1,2 - - 0,9 - - - - - -Asia - - - - 1,2 4,7 5,9 1,9 - 0,9 1,9 - - 3,8 0,9 1,9Europe 2,4 2,4 - 1,2 2,4 17,6 23,5 9,4 1,9 7,5 2,8 1,9 1,9 13,2 1,9 8,5Latin America - - - - 1,2 - 2,4 0,9 - - - - - 0,9 - -Northern America - 1,2 2,4 - 4,7 5,9 20,0 1,9 1,9 1,9 5,7 1,9 1,9 10,4 1,9 8,5Oceania - - - - - - - 0,9 - - - - - - - 0,9Industry Oil & Gas 1,2 - - 1,2 - 2,4 7,1 1,9 - - - 0,9 - 2,8 - 0,9Basic Materials - 1,2 - - 1,2 3,5 2,4 4,7 0,9 0,9 - - 0,9 4,7 0,9 1,9Industrials - - - - - 7,1 1,2 0,9 - 0,9 0,9 0,9 0,9 3,8 - 0,9Consumer Goods - - 1,2 - 2,4 3,5 15,3 4,7 - 0,9 1,9 - - 4,7 1,9 5,7Health Care - 1,2 - - - - 3,5 - - 0,9 1,9 - - 1,9 - 2,8Consumer Services - - - - - 1,2 7,1 - - 1,9 - 0,9 - 1,9 - 3,8Telecommunications - - - - 1,2 3,5 - 0,9 - 1,9 - - - - 0,9 0,9Utilities 1,2 - 1,2 - - 1,2 - 0,9 0,9 - 1,9 - - - - -Financials - 1,2 - - 2,4 4,7 9,4 0,9 0,9 3,8 1,9 0,9 - 5,7 - 1,9Technology - - - - 2,4 1,2 7,1 - 0,9 - 1,9 - 0,9 2,8 0,9 0,9
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2007 (N = 136) 2008 (N = 167)
CSR level A+ A B+ B C+ C U A+ A B+ B C+ C U
Frequency 18 6 20 17 3 12 60 29 7 29 28 2 10 62
Percentages 13,0 4,3 14,5 12,3 2,2 8,7 43,5 17,4 4,2 17,4 16,8 1,2 6,0 37,1
Size (sales in million $)
< 50.000 8,0 2,2 10,1 8,7 2,2 8,0 28,3 7,8 1,8 10,2 12,0 1,2 3,6 24,0
50.000 - 100.000 2,9 0,7 3,6 1,4 - - 8,7 6,6 1,2 11,4 1,8 - - 6,6
> 100.000 2,2 1,4 0,7 2,2 - 0,7 6,5 3,0 1,2 1,8 3,0 - 2,4 5,4
Financial Performances (ROA)
< 0% 0,7 - 0,7 - - - 3,6 2,4 1,8 2,4 2,4 0,6 1,8 3,6
0% - 10% 7,2 4,3 8,0 8,7 1,4 3,6 21,7 10,8 1,8 10,2 9,0 0,6 2,4 22,2
> 10% 5,1 - 5,8 3,6 0,7 5,1 18,1 4,2 0,6 4,8 5,4 - 1,8 10,8
SG&A expenses to sales
< 15% 7,2 2,9 5,1 3,6 - 1,4 13,8 7,8 2,4 6,6 4,2 - 2,4 12,6
15% - 30% 2,2 1,4 5,8 5,8 0,7 2,9 7,2 4,2 0,6 4,8 8,4 0,6 1,8 15,6
> 30% 0,7 - 2,2 1,4 - 2,9 16,7 0,6 - 3,0 3,0 - 0,6 6,0
Unknown 2,9 - 1,4 1,4 0,7 5,1 5,8 4,8 1,2 3,0 1,8 0,6 0,6 3,0
Regions
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Africa - - 0,7 - - - - - - 0,6 - - - -
Asia 0,7 - - - - 0,7 5,1 0,6 - 1,2 0,6 - 0,6 9,0
Europe 7,2 - 8,0 2,9 0,7 1,4 13,8 10,8 1,8 12,0 3,6 - 1,2 9,6
Latin America 0,7 - 0,7 - - - - 1,2 - 0,6 - - - -
Northern America 3,6 4,3 5,1 9,4 0,7 6,5 24,6 3,6 2,4 3,0 12,6 0,6 4,2 18,6
Oceania 0,7 - - - 0,7 - - 1,2 - - - 0,6 - -
Industry
Oil & Gas 1,4 - 1,4 - - 1,4 4,3 3,0 - 1,2 - - 0,6 3,0
Basic Materials 6,5 0,7 - 0,7 - - 3,6 3,6 0,6 0,6 - - 0,6 3,0
Industrials 0,7 0,7 0,7 2,2 0,7 - 5,8 2,4 - 2,4 3,0 0,6 1,2 3,6
Consumer Goods 2,9 1,4 3,6 3,6 - 2,2 10,9 3,6 1,8 3,6 4,2 - 1,2 9,0
Health Care - - 0,7 0,7 - 0,7 2,2 - - 1,2 1,2 - - 3,0
Consumer Services - - 2,2 - 0,7 2,2 4,3 0,6 - 1,8 1,8 0,6 1,2 3,0
Telecommunications 1,4 - 0,7 - - - 1,4 1,8 - 1,8 - - 0,6 -
Utilities - - - 0,7 0,7 - 0,7 - - 1,2 0,6 - - 3,0
Financials - - 3,6 2,2 - 0,7 5,8 1,2 1,2 2,4 2,4 - 0,6 3,0
Technology - 1,4 1,4 2,2 - 1,4 4,3 1,2 0,6 1,2 3,6 - - 6,6
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2009 (N = 175)CSR level A+ A B+ B C+ C UFrequency 34 10 26 33 6 11 55Percentages 19,4 5,7 14,9 18,9 3,4 6,3 31,4Size (sales in million $) < 50.000 9,7 2,9 8,6 14,9 2,9 5,7 22,950.000 - 100.000 6,3 1,7 4,6 1,1 0,6 - 5,7> 100.000 2,9 1,1 1,7 2,9 - 0,6 2,9Financial Performances (ROA) < 0% 1,7 1,1 4,0 2,9 - 2,3 6,30% - 10% 14,3 3,4 7,4 9,1 2,9 3,4 19,4> 10% 3,4 1,1 3,4 6,9 0,6 0,6 5,7SG&A expenses to sales < 15% 9,7 2,9 2,3 6,3 0,6 3,4 10,915% - 30% 3,4 1,7 8,6 6,3 1,1 1,7 13,1> 30% 1,1 - 2,3 4,6 0,6 0,6 2,9Unknown 4,6 1,1 1,7 1,7 1,1 0,6 4,6Regions Africa - - - - - - -Asia 0,6 - 2,9 0,6 - 0,6 10,3Europe 13,1 1,7 8,0 5,7 1,1 1,1 6,9Latin America 1,7 - 0,6 0,6 - - -Northern America 2,9 4,0 3,4 12,0 1,7 4,6 14,3Oceania 1,1 - - - 0,6 - -Industry Oil & Gas 3,4 0,6 1,7 0,6 - - 2,3Basic Materials 4,6 0,6 1,7 - 0,6 0,6 2,9Industrials 1,1 0,6 2,9 3,4 0,6 2,3 3,4Consumer Goods 2,9 1,7 2,3 6,9 - 0,6 9,7Health Care - - 1,1 0,6 - - 2,9Consumer Services 0,6 - 1,7 1,1 0,6 1,1 4,0Telecommunications 2,3 - 1,1 - - 0,6 -Utilities 1,1 - 0,6 0,6 - - 1,1Financials 0,6 1,1 1,1 1,7 1,1 - 2,3Technology 2,9 1,1 0,6 4,0 0,6 1,1 2,9
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