CSR Disclosure and Equity Market Liquidity Facts

CSR disclosure and equity market liquidity
What are the current issues of CSR?

Climate change. Social justice and human rights. Income and resource
inequality. Environmental sustainability.
How CSR relates to the disclosure in a company?

Companies use corporate social responsibility (CSR) disclosures to communicate
their social and environmental policies, practices, and performance to
stakeholders. Although the determinants and outcomes of CSR activities are well
understood, we know little about how companies use CSR communication to manage a
crisis.
What is the main role of disclosures in corporate governance?

Taken as a whole, then, one of the main purposes of corporate governance and
disclosure is to manage risks. One of the functions of disclosure is to address risk. But
there is more risk than risk to shareowners.
CSR is not just considered as a social activity, but explicit commitments

regarding CSR have been made to the vision, mission, value statements,
management structure and processes of the company, so that every social
responsibility issue is foreseen and dealt with in a proper way
CSR is, CSR is that business should act and be held accountable for more
than just its legal responsibilities to shareholders, employees, suppliers and
customers. He further suggested that business should be ‘expected’ to
acknowledge and take full responsibility for the non-economic consequences
of its activities with respect to wider society and the natural environment.(Real
definition)
CSR as the company's obligation to contribute to the wellbeing of society
CSR refers to operating a business in a manner that meets or exceeds the

ethical, legal, commercial and public expectations that society has of
business.
responsible actions and their classification within the five types of CSR
(Borghesi, Houston, & Naranjo, 2014), (Carroll, 1979), (Isabel-María, 2020) ,
(Lee, Park, & Lee, 2013). Those actions are shown in table 2 bellow.
Furthermore, institutional theory suggests that the CSR behavior of firms is driven by the process of
coercive isomorphism wherein mandatory CSR regulations improve the information environment and,
consequently, generate greater confidence within the investor community and, in turn, drive up stock
market liquidity.Additionally, the recent growth in environment, social, and governance (ESG) awareness
among asset managers, analysts, and investors is also driving the demand for stocks of firms engaged in
CSR activities, which should also therefore positively influence stock market liquidity.
An increase in the liquidity of stock markets improves the efficiency of stock valuation, and therefore
may help to improve the value of a firm.
conclude that shares of the firms with effective corporate governance are more liquid than shares of the
firms with bad corporate governance, irrespective of the legal origins in which the firms work.
Given the importance of stock liquidity for both firms and investors, it is important to evaluate the stock
liquidity.
Corporate Governance is one way of ensuring that shareholder rights are safeguarded, stakeholder and
manager interests are reconciled, and that a transparent environment is maintained wherein each party
is able to assume its responsibilities and contribute to the corporation’s growth and value creation.
Thus, it is not always about shareholders but stakeholders which comprise a wider scope.
This is where both corporate governance (CG) and corporate social responsibility (CSR), set into one
platform.
The adoption of CSR is beneficial for shareholders in the long run because CSR, as an intangible
corporate asset that aligns the long-term interest of other stakeholders with that of shareholders,
accrues gains and increases firm value over the long-term.
Extant literature suggests that higher firms’ stock market liquidity is associated with
lower cost of capital.
Bachground of the study

CSR literature is quite comprehensive because it has a long and multi-faced history. Since it embraces
various disciplines ranging from economics to sociology, formal writings on social responsibility are
easily traced, especially in the past 50 years (Carroll, 1990).
First and foremost, Harrison and Freeman (1999) argue that company’s board must take into account
several actors at stake, namely stakeholders. If they would focus their attention only on the
shareholders needs, their financial performance will ultimately be damaged.
econdly, in this context researchers start focusing on the so-called ‘triple bottom line’ (TBL). Elkington
(1994) proposes a new accounting framework that embraces three different dimensions of
performance: social, environmental and financial.
We should be considered is the return on capital. While still few experts consider CSR programs
expensive, the link between environmental goals and operational efficiency is strong. Take for example
the employment of resources to either reduce energy costs through energy efficiency or reduce input
cost through packaging initiatives and process improvements.
An additional explanation can be found in the risk management. Research highlights how company’s
behaviour shifts from programs’ implementation to mitigate risks to their active management by taking
stand on important issues, such as corruptions, labour practices and use of limited resources. Indeed,
this attitude benefits the company reputation and helps it to build solid relationships with its
stakeholders.
ESG and CSR reporting needs to be connected to the core business strategy and the internal company
measuring system.
Once this is in place and board and top management are involved, ESG reporting becomes a critical step
toward a competitive enterprise. These actions lead to a functional management of company’s
performance, because it allows to identify issues and to prioritize them, set targets and track both
improvements and losses (MacLean & Rebernak, 2007).
It is necessary and important to ask whether ESG disclosure by firms can
positively affect stock liquidity which plays a key role in asset pricing(Keene
and Peterson, 2007).
This study differs from the existing literature, which proposes that ESG
disclosure affects stock liquidity from the shareholder wealth and utility point
of view and enriches the understanding of ESG disclosure from signaling
theory and reputation theory.
According to signaling theory, the release of ESG information can assist
minimize the information asymmetry for market participants, reduce
uncertainty and thus affect the stock price and liquidity (Deng and Cheng,
2019; Gentzkow and Shapiro, 2006).
The larger firms are likely to disclose CSR, because these firms want to get
positive values in the eye of the society and legitimate way. Wardhani and
Muid (2017) stated that firm size has a positive impact on CSR.
A number of prior studies have proved that stock market liquidity is affected
by the CG adopted by firms and quality of financial reports (Chen et al. 2007;
Jain et al. 2008; Chung et al. 2010; Tang and Wang 2011; Lang et al. 2012)
CG reduces information asymmetry problems which have a positive effect on
liquidity (Chen et al. 2007).
Platonova et al., (2016) argued that larger size firm appear to attract cheaper
capital, which give the larger profits

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CSR disclosure and equity market liquidity

What are the current issues of CSR?

How CSR relates to the disclosure in a company?

What is the main role of disclosures in corporate governance?

CSR is not just considered as a social activity, but explicit commitments

CSR as the company's obligation to contribute to the wellbeing of society

CSR refers to operating a business in a manner that meets or exceeds the

lower cost of capital.

Bachground of the study

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