Determinants of Corporate Social Responsibility Disclosure and Its Impact on Investment Behavior of Firms: The Case of China and Pakistan


In the light of growing global awareness, there is an increasing pressure on firms to participate in Corporate Social Responsibility activities .However, owing to the voluntary nature of sustainability activities, the respective decision to adopt or not could be affected by the firm specific features and motives and preferences of owners or directors on corporate boards. In contemporary literature relationship of various characteristics of firm, governance and ownership with CSR disclosure has been explored; but mixed results have been obtained. This study aims to fill this literature gap by examining the determinants of CSR disclosures in China and Pakistan. The sample consists of 396 and 220 firms from China and Pakistan respectively for a period of nine years (2009-2017). CSR disclosure quantity and quality indices are developed for Pakistani firms to arrive at reliable results. Employing Linear regression analysis the results show that firm size, profitability, indebtedness, board independence, institutional ownership and family ownership are the significant determinants of CSR disclosure quantity and quality of Chinese firms. For Pakistani firms the significant determinants found were firm size, profitability, indebtedness, board independence, board size, multiple directorships, political connectedness and family ownership.

Furthermore, with regards to financial implications the prior evidence, that firms investment efficiency is positively affected by its CSR disclosure leaves unaddressed whether all kinds of disclosure have the same effect or not. Drawing on stakeholder theory and employing cross-sectional logistic regression model to test the hypothesized association, the results imply that firms high (low) quality disclosure regarding their engagement in CSR activities increases their chances of being from the investment efficient (inefficient) group. The obtained results conclude that CSR reporting activity is not beneficial for companies unless a meaningful disclosure of sustainability information is made. This study contributes to the scarce evidence on CSR reporting in China and Pakistan and provides a useful method for assessing quality of CSR reports. This study provides evidence of significantly different effect of CSR disclosure targeted towards primary vs. secondary stakeholders on firm-level investment efficiency. The findings of our research work hint that if CSR activities are made strongly connected to primary stakeholders then such activities may not only benefit stakeholders but also extend increase in shareholder wealth. However, any such participation in social issues beyond the interest of primary stakeholders may adversely impact on firms capabilities enhance shareholder wealth.

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