Corporate social responsibility research in accounting

Xiaobei ‘‘Beryl’’ Huang a, Luke Watson

ABSTRACT
We review research on corporate social responsibility (CSR) published in 13 top accounting
journals over the last decade. We begin with a brief discussion of the data that archival
researchers have used to measure CSR. Next, we conduct our review in four parts: (1)
determinants of CSR; (2) the relation between CSR and financial performance; (3) consequences
of CSR; and (4) the roles of CSR disclosure and assurance. We summarize the accounting
literature in these areas and comment on how accounting researchers can use their skill sets
with regard to specific issues. Within each area, we present some suggestions for future CSR
research in accounting.
1. Introduction
Recently, the academic community has taken great interest in research on corporate social
responsibility (CSR). A significant body of evidence across business research disciplines
examines questions such as which types of firms engage in CSR, and how CSR shapes firm
decisions and outcomes. Yet to our knowledge there is no recent, broad review of CSR research
published in the preeminent accounting journals, despite the fact that corporate social
responsibility has recently risen substantially in prominence within accounting research. In this
paper we review recent corporate social responsibility research in accounting, focusing on
studies published in 13 top accounting journals.
We define corporate social responsibility as firms’ efforts to surpass compliance by voluntarily
engaging in ‘‘actions that appear to further some social good, beyond the interests of the firm
and that which is required by law’’ (McWilliams & Siegel, 2001, 2006). This means incorporating
economic, legal, ethical, and philanthropic responsibilities into corporate decision making
(Carroll, 1979), and it represents a potential departure from shareholder theory, in which firms
strive to maximize shareholder wealth within legal constraints and basic social norms
(Friedman, 1970). Shareholder theory has been a dominant assumption throughout research in
economics, finance, and accounting. Corporate social responsibility is intriguing because it
suggests that firms are motivated to make decisions that are not always obviously shareholder-
wealth-maximizing. Under the stakeholder theory suggested by some CSR scholars, firms strike
a balance between shareholder interests and the interests of other stakeholders (Carroll, 1991).
This tension generates important questions that accounting researchers have a voice in
answering.
Corporate social responsibility is closely related to corporate sustainability. KPMG (2013)
reports that 14% of the world’s largest 100 firms use the term ‘‘corporate responsibility,’’ 25%
of firms use ‘‘corporate social responsibility,’’ and 43% of firms use ‘‘sustainability.’’ However,
in the articles included in this review, ‘‘corporate social responsibility’’ is the predominant
nomenclature and we use it throughout this paper. We also mention environmental research
where we feel such research contributes to the overall CSR literature, as attention to the
environment is one element of CSR. Other elements of CSR include community relations,
controversial industry/product involvement, corporate governance, diversity, employee
relations, human rights, and product-related issues. From this list it should be clear that CSR
includes a broad spectrum of activities that can affect a wide range of stakeholders positively or
negatively. This expansive definition gives rise to measurement issues that make some CSR
questions challenging, an issue we discuss in greater detail in the body of this paper.
Integrated reporting (IR) is another CSR-related concept that is rising in popularity, particularly
given the Johannesburg Stock Exchange’s IR mandate. An integrated report ‘‘is a concise
communication about how an organization’s strategy, governance, performance and prospects,
in the context of its external environment, lead to the creation of value over the short, medium,
and long term’’ (IIRC, 2013). Scholars have suggested that CSR reporting may evolve into IR
(Adams & Simnett, 2011). While no published studies of IR met our search criteria (discussed in
the next paragraph), Volume 27, Issue 7 of the Accounting, Auditing & Accountability Journal
was dedicated to IR and contained a review of the IR literature (de Villiers, Rinaldi, & Unerman,
2014). We avoid overlapping with their review, but emphasize that IR remains an area of
opportunity for accounting researchers.
An important limitation to this review is that we have focused on studies published in the last
decade in 13 prominent accounting journals. We identified 47 original research papers that fit
these criteria, listed by research methodology, topic, journal, and year in Table 1. While the
topical breakdowns are subject to judgment, the plurality of CSR research in accounting is on
financial accounting-related issues. Meanwhile, there are several studies of auditing,
managerial, and tax related issues. Of the 13 journals we searched, the most prolific outlets for
CSR research have been Accounting, Organizations and Society, Auditing: A Journal of Practice
& Theory, Journal of Accounting and Public Policy, Management Accounting Research, and The
Accounting Review. We also direct our readers to the following four articles that review CSR
research in different scopes and attempt to avoid significant overlap with them. First, Gray and
Laughlin (2012) review CSR research in accounting but focus on a different set of journals, with
Accounting, Organizations and Society being the primary overlap between their review and
ours. Second, Cohen and Simnett (2015) review studies of CSR assurance, which overlaps
somewhat with Section 6 of this paper. Third, Gray, Kouhy, and Lavers (1995) review earlier
studies on CSR reporting. Fourth, Berthelot, Cormier, and Magnan (2003) review earlier
literature on environmental disclosure.
There is a natural link between CSR and accounting because the accounting profession has a
general responsibility for the measurement, disclosure, and assurance of information, including
CSRrelated information. As CSR became nearly ubiquitous in modern business over the last few
decades (KPMG, 2013; Pederson, 2006), periodic CSR reporting became popular for larger
businesses. Accounting professionals have the opportunity to participate in the creation,
assurance, issuance, and analysis of CSR reports. Further, since CSR began as a form of self-
regulation and in some cases even presently lacks a formal regulatory structure, responsibility
for CSR reporting falls partly on accounting professionals. Thus, accounting plays an important
role in corporate social responsibility.
In the next section we briefly discuss the data that archival researchers have used in the CSR
arena to help new CSR scholars understand what is available. In Sections 3–6, we organize
accounting research on CSR according to four general themes. We discuss the state of the
literature within each theme and discuss directions for future research. Section 3 discusses
accounting research on the determinants of CSR activity. Section 4 discusses accounting
research on the relation between CSR and financial performance. Section 5 discusses
accounting research on the consequences of CSR. Section 6 discusses accounting research on
CSR disclosure and assurance. Section 7 concludes.

2. Data
Archival researchers have measured CSR using a variety of datasets and methods. The most
prominent CSR dataset used in accounting literature and elsewhere is MSCI ESG STATS
(formerly known as KLD). MSCI analysts rate firms using binary scores across a variety of
subcategories (known as either ‘‘strengths’’ or ‘‘concerns’’) within major categories such as
community, corporate governance, diversity, environment, products, and controversial industry
involvement. MSCI coverage begins in 1991 with about 600 firms, rates approximately 2400
U.S. firms from 2003 onward, and has also begun rating the 2600 largest non-U.S. firms since
2013.
Thomson Reuters ESG Research Data (formerly known as ASSET4) is another popular CSR
dataset. This dataset began with the Russell 1000 firms in 2002 and now contains ratings for
over 4000 companies globally on over 500 variables. Another broad set of CSR ratings come
from the Financial Times Stock Exchange (FTSE), which rates a global set of publicly traded firms
on over 300 CSR variables from 0 to 5. FTSE adds firms scoring 3.5 or higher to its FTSE4Good
Index. It also applies exclusionary screens to firms that manufacture certain controversial
products (FTSE, 2014).
Another source of CSR data is lists of top CSR performers. Such lists include the Calvert Social
Index, the FTSE4Good Index, the Dow Jones Sustainability Indices (global or by geographic
region), and Innovest’s ‘‘Top 100 Leaders in Sustainability.’’ Researchers typically use a binary
variable to indicate whether a sample firm is a top CSR performer according to these lists.
One important issue with CSR data is that the ratings of different institutions exhibit a
worrisome degree of disagreement, suggesting that the ratings have low validity. Chatterji,
Durand, Levine, and Touboul (2015) compare ratings from ASSET4, Calvert, DJSI, FTSE4Good,
Innovest, and MSCI and find that the mean correlations between a given index and the other
indices range from 0.13 to 0.52. They find, however, that the correlations between a given US
(European)-based rater’s ratings and the ratings of other US (European) raters are highly
correlated, suggesting that the agreement of the ratings depends on the raters’ location. This
could stem from different CSR norms in each geographic area. Chatterji et al. (2015) highlight
the need for further formal validity tests of CSR ratings. Future research in accounting and
other fields may provide ex post validation of these CSR measures. The granularity of CSR
ratings makes this possible. For example, for firms that a CSR rater rates high on social
responsibility of their tax planning, one might expect such firms to avoid unfavorable tax
settlements and revelations oftax shelter involvement. Furthermore, disagreement of CSR
ratings may be rooted in the difficulty that firms have in measuring CSR. Virtanen, Tuomaala,
and Pentti (2013) show that underdeveloped performance indicators hamper CSR performance
management.
As a final note about CSR data, the limitations that archival researchers face often do not apply
to researchers who conduct experiments. Experimental settings are ideal for overcoming the
limitations of CSR data, and already many CSR experiments have been published.
3. Determinants of corporate social responsibility
Despite the widespread popularity of CSR, there remains significant variation in the observed
levels of CSR activity and disclosure both across and within industries (Cuganesan, Guthrie, &
Ward, 2010). The line of research on determinants of CSR provides explanations for why such
variation exists. Since the determinants of CSR range far beyond accounting, a large body of this
literature exists outside of accounting. Still, accounting researchers have documented some
important findings that we summarize in this section.
3.1. Stakeholder efforts
Part of managers’ motivation for CSR is intrinsic. Parker (2014) interviewed four leading
industrialists in Britain and found that managers’ personal philosophical, religious, and
accountability orientations can shape their firm’s CSR orientation. However, there are also
important external motivations for CSR. Outside stakeholders help motivate firms to undertake
CSR activities. Based on a series of interviews with key executives in a Canadian multinational
firm, Rodrigue, Magnan, and Boulianne (2013) document how an organization integrated
stakeholder concerns into its strategic performance measurement system. From the interviews,
they find that pressure from various stakeholders has a great impact on the firm’s
environmental strategy. Stakeholders such as clients and creditors request a sound
environmental management system to ensure environmental sustainability while the firm
remains competitive on product quality, price, and supply chain. Stakeholders’ influence on
environmental strategy can further affectthe firm’s choice of environmental performance
indicators, which is critical in the sense that ‘‘what gets measured gets done.’’ Similarly,
Pondeville, Swaen, and Ronge´ (2013) document that pressure from market, community, and
organizational stakeholders has a strong influence on the development of firms’ strategy and
environmental management control systems. Last, Contrafatto (2014) shows that increasing
public pressure and expectations for CSR motivates firms to establish a common definition of
CSR, which is a critical early step in implementing CSR reporting.
Aside from pressure from outside stakeholders, managers have their own reasons to allocate
resources to CSR. An increasing number of firm managers want to create value for shareholders
and also become eco-efficient to bring sustainable value to stakeholders (Figge and Hahn,
2013), despite the fact that these two goals are not always congruent. Competition from peers
is one motivation for managers to undertake CSR efforts because managers have a desire to be
industry leaders with respect to environmental efforts and CSR performance (Rodrigue et al.,
2013).

3.2. The institutionalization of CSR

Gray (2010) argues that a deep understanding of CSR is required to understand how to account
for it and report on it. Several other studies address the process by which CSR accounting
became institutionalized. Moore (2013) conducts a case study of an Australian public sector
water business over a ten-year period. He argues that the institutionalization of financial and
cost accounting practices and environmental and sustainable management practices depends
on the ‘‘interrelationships of competing factors such as external and internal tensions and
virtual structures of signification, legitimation and domination.’’ Contrafatto (2014) conducts a
longitudinal case study of an Italian multinational company in the energy sector and analyzes
social and environmental reporting (SER). The study identifies a three-step process that makes
SER institutionalized: common perception construction, practicalization, and reinforcement.
Bouten and Hooze´e (2013) conduct interviews with managers of four Belgian companies and
conclude that environmental reporting and disclosure are shaped by disturbances that occur in
the natural environment, such as regulation and social pressure. However, the
institutionalization of SER also faces constraints. For example, Contrafatto and Burns (2013)
suggest that profit maximization limits the role of CSR concerns in business operations. This
tension between CSR objectives and traditional performance objectives is an important point
for CSR researchers to consider.
3.3. CSR effort and management control systems
Recent literature suggests that integrating CSR elements into organizational
management leads to improved control over corporate CSR objectives. Eco-control is
the application of financial and strategic control methods to environmental
management (Henri & Journeault, 2010). Based on a survey of Canadian manufacturing
firms, Henri and Journeault (2010) find that eco-control lacks a directinfluence on
financial performance, but has a mediating effect on financial performance through its
positive relations with environmental exposure, public visibility, environmental concern,
and firm X.B. Huang, L. Watson / Journal of Accounting Literature 34 (2015) 1–16 5 size.
This finding implies that integrating environmental dimensions into management
control systems may help firms increase both environmental performance and financial
performance.
 Gond, Grubnic, Herzig, and Moon (2012) further study the integration of sustainability
elements into organizational strategy through management control systems (MCSs) and
sustainability control systems (SCSs) based on Simons’ levers of control framework
(Simons, 1995). They argue that the strategy-making function of control systems can
help integrate CSR into the firm’s organizational strategy; also, control systems can
shape the implementation of such strategies. Similarly, Arjalie` s and Mundy (2013) use
Simons’ levers of control framework to show how management control systems can be
used to manage CSR strategy. They document that by mobilizing controls, MCSs can
help firms identify CSR-related risks and opportunities as well as provide formal
processes to guide employees to achieve CSR objectives.
Finally, corporate strategy itself provides an impetus to incorporate CSR into MCSs.
Using a survey of 256 Belgian manufacturing firms, Pondeville et al. (2013) find that
firms with more proactive environmental strategies are more likely to develop
environmental MCSs. However,they also find that perceptions of environmental
uncertainty have a negative impact on the development of proactive environmental
strategies, environmental information systems, and formal environmental management
control systems.

3.4. Directions for future research

Research on determinants of CSR is important on its own, but beyond that it is
particularly intriguing for its potential to add to the dialog on the relation between CSR
and financial performance. The ex ante motivation for CSR efforts could affect the
relation between CSR effort and firm performance. For example, if a firm’s incentive in
undertaking CSR is for the benefit of society rather than shareholders, one can predict
that there is no significant relation or even a negative relation between CSR and firm
future performance because CSR expropriates the firm’s resources (Moser & Martin,
2012). If instead CSR is a cost of market entry, there is also likely to be little return to
CSR. Alternatively, if CSR is part of a competitive strategy (Flammer, 2015b), firms that
execute the strategy effectively should experience a positive relation. Understanding
what drives firms to conduct CSR can therefore add context to the relation between CSR
and financial performance.
We are also interested in further research on the role of accountants in driving CSR
activity. As accountants help choose key CSR performance indicators, prepare CSR
reports, and provide CSR assurance, their choices are likely to affect the firm’s CSR
activities. This provides an avenue for accountants to directly and indirectly affect CSR.
We believe this role is intriguing because it suggests an unintended influence:
accountants are engaged for the preparation and assurance of reports, for example, but
they are not necessarily expected to help make CSR strategy choices. To the extent that
accountants influence CSR strategy, performance, and/or expenditures, there may be
an unintended influence that arises through the measurement, reporting, and
assurance roles that accountants play. Along similar lines, which firms hire Chief
 Sustainability Officers (CSOs) or equivalent officers and what effects do CSOs have?
Serafeim and Miller (2015) introduce these individuals who are responsible for
overseeing firms’ CSR efforts, but much more remains to be known. Researchers active
in this area must be careful to mitigate the selection concerns that often accompany
studies of executives as described by Tucker (2010).
Additional research on the determinants of or motivation for CSR effort will help answer
the question of which firms make meaningful efforts to be socially responsible and
which firms are successful in developing a socially responsible reputation. Evidence on
the CSR input/output relation would be beneficial in identifying which CSR efforts
produce strong CSR performance, potentially helping firms identify and employ more
effective CSR resource allocation decisions.
Corporate altruism is a natural question that arises when considering the motivation for
CSR. Is there an altruistic motive for CSR? Would CSR occur naturally, that is, apart from
market demands or stakeholder demands? Which firms engage in altruistic CSR and
which firms engage in CSR as a result of market or stakeholder demands? A Friedman
(1970) view of CSR would likely contend that any CSR activity that yields zero or
negative return is altruistic. Findings of no return or negative return to CSR, however,
are not ipso facto evidence of corporate altruism, because CSR could be motivated by
failed attempts to increase profits. Likewise, CSR could be seen as a social norm that is
necessary despite its cost. Disentangling altruism from these alternative explanations is
difficult because altruism is an extremely difficult concept to measure. Recently,
researchers have begun to study managerial altruism and its link to CSR (Balakrishnan,
Sprinkle, & Williamson, 2011; Borghesi, Houston, & Naranjo, 2014). Managerial altruism
may be a useful starting point for further research in this area.
A final area of CSR determinants that warrants further attention is the faction of socially
irresponsible firms. While some research has studied so-called ‘‘sin’’ firms that are
involved in controversial industries (Kim & Venkatachalam, 2011), equally interesting is
the fact that within noncontroversial industries there is wide variation in CSR. What
allows or motivates certain firms to be socially irresponsible? What factors create a
different social norm for these firms, or, if there is not a different standard, what is the
cost that they pay for disregarding social norms?
4. CSR and financial performance
4.1. Prior literature
Shareholder theory states that managers should behave in the interest of shareholders;
thus, in order to be justified, CSR must ultimately benefit shareholders. This theory
seems to conflict with CSR, which is ostensibly an effort to address the needs of non-
shareholders. Moreover, the costs and benefits of CSR have been difficult to identify
conclusively. However, evidence suggests that the benefits of stakeholders and
shareholders are not necessarily in conflict because CSR can enhance firms’ reputation,
brand, and trust, attracting customers and employees and ultimately increasing
profitability and firm value (Jones, 1995; Porter & Kramer, 2006, 2011). As a result, even
 CSR efforts that address ethical or philanthropic concerns may maximize shareholder
wealth.
Margolis, Elfenbein, and Walsh (2009) review 251 published papers, books,
dissertations, and working papers that investigate the relation between CSR and
accounting-based or market-based measures of financial performance. They conclude
that there is a small positive relation between CSR and financial performance and that
the size of this relation has become even smaller in recent years, which could be a real
effect or merely a result of improvements in methodology. Further, the evidence is not
universally supportive of this relation. For example, Elliott, Jackson, Peecher, and White
(2013) use an experiment to investigate how investors value a firm’s fundamental value
given its CSR performance, finding that firm value is negatively associated with CSR.
However, the relation diminishes with explicit assessment of CSR performance,
indicating an unintended and causal effect of CSR on firm value for investors that do not
explicitly assess CSR performance. The results of the meta-analysis in Margolis et al.
(2009), while informative of the overall conclusions of past literature, should be taken
with caution because the individual studies analyzed therein vary widely on many key
factors such as time period, measures of CSR and financial performance, and research
design. We encourage consideration of individual studies with careful, clever research
design such as Flammer (2015a), which uses CSR-related shareholder proposals to
simulate random assignment of CSR activities and finds that CSR does indeed lead to
positive stock returns and earnings performance.

One key issue for studies of CSR and financial performance to consider is reverse
causality; that is, CSR is a product of financial performance (Hong, Kubik, & Scheinkman,
2012). Lys, Naughton, and Wang (2014) investigate this possibility by decomposing CSR
into two components to identify whether CSR is an investment or a signal. They begin
by showing evidence of a positive relation between CSR and future earnings and cash
flows from operations, suggesting that CSR is not mere charity. They find no statistically
significant relation between CSR and stock returns. They then show that the positive
relation between CSR and earnings performance is driven by deviations from expected
CSR. This is consistent with managers increasing CSR to signal their private information
about strong expected future financial performance, but Lys et al. (2014) argue that this
effect has been misinterpreted by prior studies as evidence of a positive effect of CSR
on financial performance. In other words, the link between CSR and financial
performance is not causal.

4.2. Directions for future research

While there is considerable evidence about the relation of CSR and financial performance,
the results are mixed, making it difficult to draw a definitive conclusion. At the heart of the
issue is whether firms are successful because they are socially responsible or whether CSR is
 merely something that successful firms do. This issue is a classic endogeneity problem.
Accounting researchers are accustomed to answering complex questions where there is
endogeneity between financial performance and the construct of interest. In particular,
studying earnings is a promising avenue by which to begin to answer the CSR-financial
performance question because it avoids using market perceptions as performance
measures as in studies that use firm value or stock returns. Even if some market participants
properly value CSR, other participants may unduly value CSR (Moser & Martin, 2015),
thereby distorting the relation.
Careful measurement of the costs and returns to CSR is necessary for conclusive analysis of
the relation between CSR and financial performance. Both of these measurements are
difficult, hence the long history of the question. Accounting researchers can use their
measurement expertise to provide more definitive evidence on this question and other
questions that depend on precise measurement of the costs of and returns to CSR.
Corporate social responsibility transfers firm resources to non-shareholder stakeholders. An
important question is what the firm receives in return for this transfer. On one hand, the
positive sentiment a firm gains by engaging in CSR may produce returns to shareholders in
the form of increases in sales, earnings, and stock price. On the other hand, the transfer of
resources away from the firm and its shareholders appears to be an expropriation of
shareholder wealth. This transfer could jeopardize the firm’s longevity. To limit the negative
impact of CSR expenditures, firms might conduct their CSR activities using slack resources.
In this vein, Watson (2015) finds that even socially responsible firms reduce their tax
payments when earnings performance is weak. This finding is consistent with the idea that
socially responsible firms’ resource transfers to non-shareholders vary with resource
availability; however, future research could explore this question further. Some scholars
view CSR as a core expenditure rather than a discretionary one (Ballou, Casey, Grenier, &
Heitger, 2012), suggesting that CSR is necessary even under scarce resources.5 A host of
related questions could be interesting in exploring how firms expropriate resources while
remaining viable. For example, to what extent does CSR help sustain the corporation itself
versus its role as an aid to the world outside the firm? How do non-tax CSR expenditures
vary with financial performance? Do creditors face increased risk as CSR efforts consume
cash? These questions lead us directly into the next section in which we discuss the
consequences of CSR.

5. Consequences of corporate social responsibility

5.1. Prior literature
Much of the recent literature on the consequences of CSR provides evidence of
mechanisms by which CSR performance relates to firm value. Cho, Lee, and Pfeiffer
(2013) examine the relation between CSR performance and information asymmetry
directly, demonstrating that CSR performance is negatively related to information
asymmetry as proxied for by bid-ask spread. They find that both negative and positive
CSR activities can reduce information asymmetry. This association only exists in firms
with fewer institutional investors, suggesting that informed investors will act upon
information pertaining to CSR performance. Matsumura, Prakash, and Vera-Mun˜oz
(2013) examine the relation between carbon emissions and firm value. They find that
firm value decreases by $212,000 for every thousand metric tons of carbon emissions.
In addition, when firms do not disclose carbon emissions, firm value decreases by more
than that of disclosing firms.
Kim, Park, and Wier (2012) show a positive relation between CSR and earnings quality.
Specifically, strong CSR performers are less likely to manage earnings through
discretionary accruals, less likely to manipulate real operating activities, and less likely
to be subject to SEC investigations. Barton, Kirk, Reppenhagen, and Thayer (2015) add
depth to this conclusion with evidence that socially responsible firms manage earnings
in an attempt to meet analysts’ forecasts and reduce financing and tax costs, as
opposed to rent extraction. This evidence is consistent with socially responsible firms
exhibiting more responsible motives for earnings management.
Another mechanism by which CSR can improve financial performance is by bolstering
the firm’s reputation. For instance, CSR can repair reputational damage following
earnings restatements (Chakravarthy, deHaan, & Rajgopal, 2014). Along similar lines,
Guiral (2012) finds that positive CSR activities improve auditors’ perceptions of firms’
internal control systems, though negative CSR activities do not affect such perceptions.
These reputational effects may be linked to the ethical standards that exist in firms that
care about CSR. Gao, Lisic, and Zhang (2014) show that insiders of CSR-conscious firms
are less likely to engage in insider trading, consistent with CSR-conscious firm insiders
adhering to a stricter code of ethics than non-CSR-conscious insiders.

The relation between CSR and tax avoidance has drawn considerable interest because
both CSR and tax payments distribute resources to non-shareholders and involve some
notion of corporate citizenship. Hoi, Wu, and Zhang (2013) find that negative CSR
activities are associated with tax avoidance. In apparent contrast, Davis, Guenther,
Krull, and Williams (2013) find that socially responsible firms are associated with tax
avoidance, suggesting that managers do not view tax as part of CSR. Watson (2015)
provides some degree of reconciliation for these findings by showing that the link
between CSR and tax avoidance depends on earnings performance: both socially
responsible and socially irresponsible firms avoid more tax when earnings performance
is poor, but these effects weaken and in most cases disappear when earnings
performance is strong. In a somewhat related question, Balakrishnan et al. (2011) use
an experiment to investigate the effect of non-shareholder distributions on internal
stakeholders. They find that an employer’s corporate charitable giving increases
altruistic employee contributions to their employer, despite reducing the amount that
the employer can share with its employees. This effect attenuates only at very high
 levels of corporate giving. It is interesting evidence of employee altruism arising as a
product of corporate altruism.

5.2. Directions for future research

Beyond the consequences of CSR for financial performance discussed in Section 4, there
are several other avenues for future research on the consequences of CSR. Aside from
the positive effects of CSR, a reputation for social responsibility can increase the cost of
actions that are inconsistent with the firm’s socially responsible image. There is little
known evidence of such costs, perhaps because they do not exist or perhaps as a result
of confirmation bias in which individuals who believe a firm is socially responsible
ignore information that is inconsistent with their belief and seek out information that
reinforces their belief. A similar story could be true for firms that individuals perceive as
socially irresponsible. Carefully documenting the existence and extent of confirmation
bias is another area where accounting researchers can contribute to the CSR and
psychology literatures.

Accounting researchers have documented some important benefits to CSR, as described

above, but what are the costs associated with CSR? Future research on the
consequences of CSR should continue to improve measurement of CSR expenditures.
Collaboration with industry would be helpful in identifying how firms track their CSR-
related costs and benefits (e.g. Ballou et al., 2012; Trotman & Trotman, 2015). A field
study and/or survey would be appropriate for this type of research question.
Further investigation of the cost behavior of CSR expenditures would be interesting.
Accounting researchers who understand cost behavior could use their skills to make
great improvements in this area, ultimately helping answer the question of what firms
are spending on their CSR projects. CSR projects are often long-lived and may be
difficult to cancel once the firm has announced its commitment. Therefore, CSR-related
expenditures are likely to be highly sticky. Future research documenting CSR cost
stickiness and explaining its implications could be insightful. Another CSR consequences
question is the deadweight loss of CSR. If CSR expenditures distort corporate decisions
in a way that produces a deadweight loss, research on the size and incidence of this loss
would be valuable. Dutta, Lawson, and Marcinko (2013) present a helpful framework for
variance analysis of costs and benefits related to CSR activities. Finally, we would like to
see more evidence on the indirect costs of CSR. Resources that are spent on CSR could
presumably be put to other productive uses. What is the opportunity cost of CSR?
6. CSR disclosure and assurance
6.1. Prevalence and regulation
The disclosure literature suggests that voluntary forecasts can reduce information
asymmetry, helping firms reduce their cost of capital, avoid negative shocks to stock
price, and aid analyst forecasting (e.g. Healy & Palepu, 2001; Hirst, Koonce, &
 Venkataraman, 2008). As another key source of private information, CSR disclosure has
the potential to play a similar role in capital markets.
Firms are eager to discuss and disclose their CSR efforts to the public because there is an
obvious marketing element to CSR. Nearly every corporate website now contains a page
dedicated to the firm’s CSR or sustainability efforts, and KPMG (2013) reports that 71%
of 4100 large firms worldwide prepare CSR reports, including 93% of the largest 250
firms. Accounting researchers are interested in various forms of CSR reporting and
disclosure because the reports contain material information.
While CSR activities are often considered a form of self-regulation, government- and
stock exchange-driven regulations are formalizing CSR disclosure for many firms. The
European Union (EU) recently adopted a Directive requiring large companies listed on
EU-regulated markets to make disclosures relating to environmental, employee, human
rights, corruption, and diversity matters (European Commission, 2014). The EU joins
China, Malaysia, South Africa, and Taiwan in requiring some form of CSR reporting.
Currently, there is no CSR reporting mandate in the United States, although US-based
companies may be affected by mandates in other markets if they fall subject to other
jurisdictions’ rules.6 Further, the United Nations (UN) has engaged itself in the CSR
arena, raising questions about the scope of its influence. The United Nations Global
Compact (UNGC) is the UN’s CSR initiative for development, implementation, and
disclosure of CSR activities.
As the entities above require some form of reporting, the question of how and what to
report has arisen. Some organizations, such as the EU, list explicitly what is required,
thereby creating their own de facto reporting standards. Meanwhile, third parties also
promote their own reporting standards. The Global Reporting Initiative (GRI, with a
global focus) and Sustainability Accounting Standards Board (SASB, with a United States
focus) are among the most prominent of these organizations. In effect, these
organizations and countries create CSR reporting standards similarly to how the FASB
creates US GAAP for financial reporting.

Just as financial reports are subject to external assurance, there is external assurance of
CSR reports (GRI, 2013). CSR assurance is not mandatory in the United States nor in
most other countries. Nonetheless, KPMG reports that 59% of the world’s largest 250
companies obtain CSR assurance, with two-thirds of companies engaging accounting
firms for this purpose. We continue our discussion of CSR disclosure and assurance in
the next section.

6.2. Prior literature

Early research by Anderson and Frankle (1980) demonstrated that the disclosure of social
information can increase the firm’s stock price, suggesting that such disclosures have
information content. Plumlee, Brown, Hayes, and Marshall (2015) and Al-Tuwaijri,
Christensen, and Hughes (2004) indicate that voluntary environmental disclosures are
associated with higher firm value after controlling for accounting performance. Griffin and
Sun (2013) find that the stock market reacts positively to voluntary CSR disclosure.
CSR disclosures also affect analyst and investor behavior. Dhaliwal, Li, Tsang, and Yang
(2011), Dhaliwal, Radhakrishnan, Tsang, and Yang (2012) show that CSR disclosures can
attract more analysts and institutional investors and reduce analyst forecast error,
prompting a reduction in the cost of equity capital. They suggest that CSR disclosures can be
viewed as a substitute for financial disclosures in terms of improving a firm’s information
environment (Dhaliwal, Li, Tsang, & Yang, 2014). Lanis and Richardson (2012) show that
higher levels of CSR disclosure are associated with lower tax avoidance, suggesting
increased transparency. However, Cohen, Holder-Webb, Nath, and Wood (2011) conduct a
survey of retail investors and find that these users do not place great value on CSR
information relative to economic and governance information. In related work, Cheng,
Green, and Ko (2015) show that investors value CSR only when its measurement pertains
closely to the firm’s core strategy.
Clarkson, Fang, Li, and Richardson (2013) show that voluntary environmental disclosures
can increase firm value. They argue that voluntary environmental disclosures can provide
incremental information about the firm’s competitiveness and expected future firm
performance. Thus, environmental disclosures can be seen as a ‘‘signal’’ to investors as in
Lys et al. (2014). Clarkson et al. (2013), however, do not find an association between
environmental disclosures and the cost of capital. The difference in findings between
Clarkson et al. (2013) and Dhaliwal et al. (2011, 2012) suggests that CSR disclosure affects
cost of capital in a way that environmental disclosure alone does not.
Recent evidence implies that CSR disclosure mediates the relation between CSR
performance and financial performance. Dhaliwal et al. (2011) document that the effect of
CSR disclosures on the cost of equity capital exists only in firms with strong CSR
performance. Matsumura et al. (2013) provide evidence that the decrease in firm value due
to carbon emissions is smaller in firms with carbon disclosure than in non-disclosing firms.
Taken together, the results of these studies indicate that CSR disclosure rewards firms for
good CSR performance while mitigating the penalty to firms with poor CSR performance.
This observation is consistent with stakeholders viewing CSR disclosure as a commitment to
social investment, thereby improving the firm’s reputation (Brown, Guidry, & Patten, 2010;
Cho, Guidry, Hageman, & Patten, 2012; Lanis & Richardson, 2012).
Legitimacy theory contends that the mediating role of CSR disclosure may encourage firms
to use CSR disclosure as a tool to mask poor CSR performance. Cho et al. (2012) argue that
poor environmental performers manage users’ impressions using biased language and tone
in their environmental disclosures. Cho et al. (2012) find that firms with poor CSR
performance are more willing to disclose environmental information because voluntary
disclosure of such information can help improve their environmental reputation despite
their environmental performance. Cho et al. (2012) highlight a concern that CSR evaluators
(i.e. DJSI in particular) may overweight CSR disclosure relative to CSR performance, which
would ‘‘hinder[s] improved future corporate environmental performance,’’ contrary to
DJSI’s stated objective of creating measurable benchmarks for social and environmental
considerations. Along similar lines, Brown-Liburd and Zamora (2015) find that CSR
assurance is required for investors to value CSR investments when managers are
compensated for their firm’s CSR performance.
Compared to research on the existence or quantity of CSR disclosure, research on CSR
disclosure quality is quite limited. Plumlee et al. (2015) use a modified version of the GRI
Content Index as an indicator of the quality of firms’ voluntary environmental disclosure
and find that environmental disclosure quality is positively related to firm value. Aerts and
Cormier (2009) indicate that the quality of annual report environmental disclosures can
positively affect environmental legitimacy.
There is little evidence on the determinants of CSR disclosure quality, but two studies
provide determinants of environmental disclosure quality. Cho, Roberts, and Patten (2010)
show that poor environmental performers tend to use optimistic and uncertain tone in their
environmental disclosures. They do not investigate how such tone might affect the relation
between environmental disclosure and performance. Rupley, Brown, and Marshall (2012)
demonstrate that environmental media coverage and sound corporate governance have
positive effects on environmental disclosure quality.
Accountants have become primary providers of CSR assurance. Trotman and Trotman
(2015) conduct a set of interviews to provide a unique perspective on the role of internal
auditors in the environmental reporting realm. In terms of public accounting, O’Dwyer
(2011) discusses the process by which accounting firms have shaped CSR assurance.
Independent assurance of CSR reporting has gained only modest popularity in the United
States compared to its global popularity (Simnett, Vanstraelen, & Chua, 2009). Simnett et al.
(2009) provide evidence consistent with firms choosing CSR assurance to enhance their
credibility. Casey and Grenier (2015) attribute the relative lack of CSR assurance in the U.S.
to high levels of regulatory oversight substituting for CSR assurance. Still, they document
potential benefits to CSR assurance available to U.S. firms, including lower cost of equity
capital, analyst forecast errors, and dispersion. Interestingly, they find that these effects are
most pronounced when CSR report assurance is provided by accounting firms, which
highlights the magnitude of the opportunity for CSR assurance by accountants. Pflugrath,
Roebuck, and Simnett (2011) provide experimental evidence that CSR information is more
credible when it is assured. They find that in the United States this assurance is most
valuable when it is performed by professional accountants, while in the UK or Australia the
provider’s certification is not as important. Finally, Peters and Romi (2015) find that firms
employing Chief Sustainability Officers are more likely to obtain CSR assurance, but opt to
engage consultants for the service, while firms with environmental committees on their
boards of directors are more likely to engage accounting professionals. Further, Peters and
Romi (2015) suggest that the value-relevance of CSR assurance is increasing over time.
6.3. Directions for future research
Compared to the long history of voluntary forecast research, CSR disclosure is a
relatively new topic. Voluntary disclosure researchers are mainly interested in the
material information disclosed in CSR reports that may be relevant to, but not present
in, financial reports. Further, most firms’ annual (financial) reports contain much CSR-
related information that is found outside of the 10-K, strictly speaking. For example, in
2013 GE produced a 16-page standalone sustainability report and dedicated a significant
portion of the first 32 pages of its annual report (outside of its 10-K) to sustainability
related information. Much of this information is financial and may be useful in
evaluating the firm’s financial results and prospects.
Still, CSR differs from voluntarily disclosed financial information in at least three ways.
First, CSR activities address the demands of a broader group of stakeholders beyond
shareholders (Moser & Martin, 2012). Most of the accounting literature on the
consequences of CSR disclosures is shareholder oriented. While the shareholder effects
are interesting, a broader group of stakeholders benefits from CSR and these parties can
use CSR disclosure to identify how firms address their concerns. Thus, additional
research on how non-shareholders use and benefit from CSR disclosure is warranted.
Second, the information provided by CSR disclosure may affect financial performance in
several future accounting periods. Researchers should consider whether information
users understand the long-term nature of CSR information, particularly whether it has
long-term information content pertaining to financial performance.
Third, the qualitative and nonfinancial nature of CSR performance makes it more
difficult to evaluate the credibility of CSR disclosures than it is to evaluate the credibility
of financial disclosures, prompting great interest and need for research in CSR report
assurance. Assurance is important because the data used to measure CSR performance
must be of high quality to be reliable and relevant for decision making (GRI, 2013),
creating an enormous opportunity for accounting professionals who have valuable
assurance skills that are transferable to CSR reports. For accounting researchers, many
natural questions follow. How do non-assured reports compare to assured reports?
What are the specific benefits of assurance to report users? Also, beyond Trotman and
Trotman (2015) there is little evidence of companies’ internal efforts to ensure high-
quality CSR disclosures, so more questions remain.
Even more research opportunities lie in areas that are familiar to accounting
researchers. What are the costs of CSR disclosure and assurance? The current literature
seems to focus on its benefits. However, if a firm uses CSR disclosure to promote a
socially responsible image without a meaningful commitment to actual CSR activities,
who bears the cost of the firm’s ‘‘greenwashing’’? Also, as Moser and Martin (2012)
point out, some CSR activities come at the expense of shareholders, at least in the short
 run. Along these lines, Peters and Romi (2013) present evidence that compliance with
mandatory environmental disclosure rules depends on firms’ reporting incentives. Who
benefits and who incurs a cost if firms fail to report negative CSR issues? How does the
fiduciary duty to shareholders interact with the disclosure of activities that may not
benefit shareholders? This line of questions ties in closely with research on the relation
between CSR performance and financial performance.
Accounting researchers are also familiar with comparing different accounting standards.
Much like research on varying financial accounting standards or tax accounting rules,
the CSR reporting standards (e.g. those of GRI and SASB) compete with each other and
various stakeholders will be affected by differences between the standards. Future CSR
research on the differences in these standards will be informative as to the viability of
the standards.

7. Final thoughts
The academic accounting literature on CSR has expanded just as CSR rose to prominence in
practice in recent decades. Accounting researchers have documented important findings about
the determinants and consequences of CSR, the relation between CSR and financial
performance, and the roles of CSR disclosure and assurance. Still, CSR is a relatively new field in
accounting research. We expect CSR research to continue to grow in popularity, mirroring the
expansion of CSR in practice. With the ever-increasing popularity of CSR, though, come new
questions. Will the role of CSR change as it becomes universal? Will CSR reports and disclosure
cease to have meaningful effects if all firms participate in CSR reporting and disclosure, or will
they take on an even more important role as it becomes more difficult to separate cheap talk
from real decisions?
These and the other suggestions for future research in this article are just examples of the
many important questions yet to be answered. Accounting researchers can provide insights into
these questions because they are experts in many areas that directly apply to CSR research.
First, accounting researchers are experts in analyzing financial performance, which is helpful in
deepening our understanding of the CSR-financial performance relation. Second, accounting
researchers have expertise in measuring cost behavior, which can help them uncover insights
into CSR-related expenditures and the motivation for CSR-related activities. Third, accounting
researchers are familiar with disclosure research, which has gained importance as firms seek to
spread information about their CSR activities. Fourth, accounting researchers have experience
with assurance, which is critical as assurance of CSR-related reporting gains popularity and in
many cases becomes standardized. These are all critical areas of the future of CSR research. At
the same time, there are many challenges to CSR research. For example, it is difficult to
measure the cost of CSR, creating a fundamental roadblock to many different areas of CSR
research. Fortunately, accounting researchers have the skills and capabilities to overcome these
challenges and capitalize upon the multitude of opportunities that await them in CSR research.
We look forward to witnessing and participating in future CSR research.
Acknowledgements
We thank Jonathan Grenier, Patrick Martin, David Reppenhagen, Andrea Romi, and Jennifer Wu
Tucker for helpful comments. We thank Wayne Losano for proofreading. Huang is grateful for
the financial support of the University of International Business and Economics. Watson is
grateful for the financial support of the Fisher School of Accounting at the University of Florida.