Research Article: Moderating role of financial ratios in corporate social responsibility disclosure and firm value

Date Published: April 18, 2019

Publisher: Public Library of Science

Author(s): Muhammad Akram Naseem, Jun Lin, Ramiz ur Rehman, Muhammad Ishfaq Ahmad, Rizwan Ali, Nicola Lacetera.


This study investigates the link between corporate social responsibility (CSR) disclosure for multi-stakeholders and financial performance of a firm through accounting-based activities for CSR. A dataset of Chinese non-financial firms listed on the Shanghai Stock Exchange from 2008 to 2012 is taken from the China Stock Market & Accounting Research database. The study compares different financial ratios of CSR disclosure and non-disclosure firms. Moreover, the financial ratios of CSR disclosure firms also compare with the industry averages. The results suggest that the financial of CSR disclosure firms are better than both CSR non-disclosure firms and industry averages. These financial ratios ensure the claim of a firm that they are socially responsible toward multi-stakeholders. Further, the same financial ratios are used as moderator variables between CSR disclosure for multi-stakeholders (independent variable) and firm financial performance (dependent variable). The relationship between CSR disclosure and firm value is moderated by the financial ratios. The moderation effect of financial ratios is rarely used in the literature of CSR disclosure and firm value.

Partial Text

Corporations around the globe are involved in multi-stakeholder corporate social responsibility (CSR) [1] activities. Some firms disclose these activities in annual reports, whereas others publish them on their websites as a separate CSR report. These kinds of activities require expert human resources and involve massive cash outflows. However, the additional information provided to multi-stakeholders may offset the cost of CSR activities. [2] argue that additional information can bridge the gap between stakeholders and a firm and, as a result, affect financial performance. Thus, observing the reaction of stakeholders of a firm that disclose CSR information is essential. [3] argue that a firm’s actions regarding CSR disclosure depend on the expectations of its stakeholders. Creditors and shareholders are significant parties interested in CSR disclosure. Therefore, investigating how multi-stakeholders react to CSR-based expenses incurred by a firm and the rewards of financial payoffs is worthwhile.

Nowadays, the green economy agenda can be timely managed, and shareholders’ goal can be achieved by constantly satisfying the needs of stakeholders [21]. Because of the varying interest of different stakeholders, CSR always remains a matter of discussion between accounting-based and performance-based financial measures. Stakeholders are classified in terms of their different interests of social and ethical responses from any public corporation: 1. shareholders, 2. internal stakeholders (employees), 3. operational stakeholders (customers and suppliers), and 4. society (state authorities, non-governmental organizations, and civil society) [22].

By highlighting the causal relation between CSR disclosure and several variables, this study confirms that a high level of CSR disclosure captures the attention of stakeholders and that CSR disclosure may be used to resolve agency issues. This study empirically tests the relationship between CSR activities and financial performance of Chinese listed firms while considering the importance of different types of stakeholders. The results suggest that CSR disclosure can improve the performance of organizations as manifested in the significant differences between the financial performances of those companies that disclose and do not disclose their CSR activities.