Journal of Management Control

, Volume 28, Issue 3, pp 251–274 | Cite as

Relationship of corporate social responsibility disclosure on information asymmetry and the cost of capital

Original Paper


Different from the strong evidence in the literature that voluntary disclosure in general and corporate social responsibility (CSR) disclosure in particular is associated with corporate financial performance results for the association of CSR disclosure and firmlevel cost of capital are not fully convincing. We argue that contradictory findings result from research design limitations and revisit the relationship, hence. Predicting a negative relationship between CSR disclosure and information asymmetry as well as for CSR disclosure and cost of capital, we examine our hypotheses based on a sample of 264 German companies that provide English language CSR reporting along with current stock prices and analyst forecast data. We use artificial intelligence based content analysis to measure CSR disclosure. We proxy for information asymmetry with bid–ask spreads and calculate an implied cost of capital measure. Results reveal that CSR disclosure is significantly negatively associated with information asymmetry as well as cost of capital. Our paper contributes to the existing literature as this is the first study to examine capital cost effects of comprehensive CSR disclosure using nonsubjective measures in the German setting that is known to have an extraordinary rich CSR disclosure and long experience in CSR and CSR disclosure.


CSR Voluntary disclosure Information asymmetry Cost of capital Content analysis 


  1. Akerlof, G. A. (1970). The market for lemons: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84, 488–500. doi: 10.2307/1879431.CrossRefGoogle Scholar
  2. Amihud, Y., & Mendelson, H. (1986). Asset pricing and the bid–ask spread. Journal of Financial Economics, 17, 223–249.CrossRefGoogle Scholar
  3. Archer, D. (2009). What’s in a word-list? Investigating word frequency and keyword extraction. Farnham, Burlington: Ashgate Publishing Ltd.Google Scholar
  4. Atkins, J., & Maroun, W. (2015). Integrated reporting in South Africa in 2012. Meditari Accountancy Research, 23, 197–221. doi: 10.1108/MEDAR-07-2014-0047.CrossRefGoogle Scholar
  5. Baumann-Pauly, D., Wickert, C., Spence, L. J., & Scherer, A. G. (2013). Organizing corporate social responsibility in small and large firms: Size matters. Journal of Business Ethics, 115, 693–705. doi: 10.1007/s10551-013-1827-7.CrossRefGoogle Scholar
  6. Bebbington, J., Larrinaga, C., & Moneva, J. M. (2008). Corporate social reporting and reputation risk management. Accounting, Auditing & Accountability Journal, 21, 337–361.CrossRefGoogle Scholar
  7. Blacconiere, W. G., & Patten, D. M. (1994). Environmental disclosure, regulatory costs, and changes in firm value. Journal of Accounting and Economics, 18, 357–377.CrossRefGoogle Scholar
  8. Bollen, N. P. B., Smith, T., & Whaley, R. E. (2004). Modeling the bid/ask spread: Measuring the inventory-holding premium. Journal of Financial Economics, 72, 97–141. doi: 10.1016/S0304-405X(03)00169-7.CrossRefGoogle Scholar
  9. Botosan, C. A. (1997). Disclosure level and the cost of equity capital. The Accounting Review, 72, 323–349.Google Scholar
  10. Botosan, C. A., & Plumlee, M. A. (2002). A re-examination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(1), 21–40.CrossRefGoogle Scholar
  11. Botosan, C. A., & Plumlee, M. A. (2005). Assessing alternative proxies for the expected risk premium. The Accounting Review, 80, 21–53.CrossRefGoogle Scholar
  12. Botosan, C. A., Plumlee, M. A., & Wen, H. (2011). The relation between expected returns, realized returns, and firm risk characteristics. Contemporary Accounting Research, 28, 1085–1122. doi: 10.1111/j.1911-3846.2011.01096.x.CrossRefGoogle Scholar
  13. Brennan, M. J., & Subrahmanyam, A. (1995). Investment analysis and price formation in securities markets. Journal of Financial Economics, 38, 361–381.CrossRefGoogle Scholar
  14. Campbell, D. J. (2004). A longitudinal and cross-sectional analysis of environmental disclosure in UK companies—A research note. The British Accounting Review, 36, 107–117.CrossRefGoogle Scholar
  15. Chen, S., & Bouvain, P. (2009). Is corporate responsibility converging? A comparison of corporate responsibility reporting in the USA, UK, Australia, and Germany. Journal of Business Ethics, 87, 299–317.CrossRefGoogle Scholar
  16. Choe, H., & Yang, C. (2006). Comparisons of information asymmetry measures in the Korean stock market. Asia-Pacific Journal of Financial Studies, 35, 1–44.Google Scholar
  17. Cho, C. H., Freedman, M., & Patten, D. M. (2012a). Corporate disclosure of environmental capital expenditures: A test of alternative theories. Accounting, Auditing & Accountability Journal, 25, 486–507. doi: 10.1108/09513571211209617.CrossRefGoogle Scholar
  18. Cho, C. H., Guidry, R. P., Hageman, A. M., & Patten, D. M. (2012b). Do actions speak louder than words? An empirical investigation of corporate environmental reputation. Accounting, organizations and Society, 37, 14–25.CrossRefGoogle Scholar
  19. Cho, S. Y., Lee, C., & Pfeiffer, R. J. (2013). Corporate social responsibility performance and information asymmetry. Journal of Accounting and Public Policy, 32, 71–83. doi: 10.1016/j.jaccpubpol.2012.10.005.CrossRefGoogle Scholar
  20. Cho, C. H., Michelon, G., Patten, D. M., & Roberts, R. W. (2015). CSR disclosure: The more things change...? Accounting, Auditing & Accountability Journal, 28, 14–35.CrossRefGoogle Scholar
  21. Cho, C. H., & Patten, D. M. (2007). The role of environmental disclosures as tools of legitimacy: A research note. Accounting, Organizations and Society, 32, 639–647. doi: 10.1016/j.aos.2006.09.009.CrossRefGoogle Scholar
  22. Clarkson, P. M., Fang, X., Li, Y., & Richardson, G. D. (2013). The relevance of environmental disclosures: Are such disclosures incrementally informative? Journal of Accounting and Public Policy, 32, 410–431. doi: 10.1016/j.jaccpubpol.2013.06.008.CrossRefGoogle Scholar
  23. Claus, J., & Thomas, J. (2001). Equity premia as low as three percent? Evidence from analysts’ earnings forecasts for domestic and international stock markets. The Journal of Finance, 56, 1629–1666. doi: 10.1111/0022-1082.00384.CrossRefGoogle Scholar
  24. Coller, M., & Yohn, T. L. (1997). Management forecasts and information asymmetry: An examination of bid–ask spreads. Journal of Accounting Research, 35, 181–191. doi: 10.2307/2491359.CrossRefGoogle Scholar
  25. Copeland, T. E., & Galai, D. (1983). Information effects on the bid–ask spread. The Journal of Finance, 38, 1457–1469. doi: 10.2307/2327580.CrossRefGoogle Scholar
  26. Davis, F. B. (Ed.). (1974). The standards for educational and psychological testing. Washington, DC: American Psychological Association.Google Scholar
  27. DeAngelo, H., DeAngelo, L., & Skinner, D. J. (1996). Reversal of fortune: Dividend signaling and the disappearance of sustained earnings growth. Journal of Financial Economics, 40, 341–371.CrossRefGoogle Scholar
  28. Demsetz, H. (1968). The cost of transacting. The Quarterly Journal of Economics, 82, 33–53.CrossRefGoogle Scholar
  29. Deutsche Börse AG. (2015). Vom Parkett zum elektronischen Handelsplatz. Accessed April 13 2016.
  30. Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86, 59–100.CrossRefGoogle Scholar
  31. Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2014). Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy, 33, 328–355. doi: 10.1016/j.jaccpubpol.2014.04.006.CrossRefGoogle Scholar
  32. Dhaliwal, D. S., Tsang, A., Radhakrishnan, S., & Yang, Y. G. (2012). Nonfinancial disclosure and analyst forecast accuracy: International evidence on corporate social responsibility disclosure. The Accounting Review, 87, 723–759. doi: 10.2308/accr-10218.CrossRefGoogle Scholar
  33. Easley, D., Hvidkjaer, S., & O’Hara, M. (2002). Is information risk a determinant of asset returns? The Journal of Finance, 57, 2185–2221. doi: 10.1111/1540-6261.00493.CrossRefGoogle Scholar
  34. Easley, D., Hvidkjaer, S., & O’Hara, M. (2010). Factoring information into returns. Journal of Financial and Quantitative Analysis, 45, 293–309. doi: 10.2307/27801486.CrossRefGoogle Scholar
  35. Easley, D., Kiefer, N. M., & O’Hara, M. (1997). One day in the life of a very common stock. The Review of Financial Studies, 10, 805–835. doi: 10.1093/rfs/10.3.805.CrossRefGoogle Scholar
  36. Easley, D., Kiefer, N. M., O’Hara, M., & Paperman, J. B. (1996). Liquidity, information, and infrequently traded stocks. The Journal of Finance, 51, 1405. doi: 10.2307/2329399.CrossRefGoogle Scholar
  37. Easton, P. D. (2004). PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital. The Accounting Review, 79, 73–95.CrossRefGoogle Scholar
  38. El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35, 2388–2406.CrossRefGoogle Scholar
  39. Elliott, R. K., & Jacobson, P. D. (1994). Costs and benefits of business information disclosure. Accounting Horizons, 8, 80–96.Google Scholar
  40. Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3–56. doi: 10.1016/0304-405X(93)90023-5.CrossRefGoogle Scholar
  41. Fama, E. F., & French, K. R. (1997). Industry costs of equity. Journal of Financial Economics, 43, 153–193.CrossRefGoogle Scholar
  42. Farrar, D. E., & Glauber, R. R. (1967). Multicollinearity in regression analysis: The problem revisited. The Review of Economic and Statistics, 49, 92–107. doi: 10.2307/1926450.CrossRefGoogle Scholar
  43. Fifka, M. S. (2013). Corporate responsibility reporting and its determinants in comparative perspective—A review of the empirical literature and a meta-analysis. Business Strategy and the Environment, 22, 1–35. doi: 10.1002/bse.729.CrossRefGoogle Scholar
  44. Francis, J., Nanda, D., & Olsson, P. (2008). Voluntary disclosure, earnings quality, and cost of capital. Journal of Accounting Research, 46, 53–99. doi: 10.1111/j.1475-679X.2008.00267.x.CrossRefGoogle Scholar
  45. Freedman, M., & Patten, D. M. (2004). Evidence on the pernicious effect of financial report environmental disclosure. Accounting Forum, 28, 27–41.CrossRefGoogle Scholar
  46. Gamerschlag, R., Möller, K., & Verbeeten, F. (2010). Determinants of voluntary CSR disclosure: Empirical evidence from Germany. Review of Managerial Science, 5, 233–262.CrossRefGoogle Scholar
  47. Gebhardt, W. R., Lee, C. M. C., & Swaminathan, B. (2001). Toward an implied cost of capital. Journal of Accounting Research, 39, 135–176.CrossRefGoogle Scholar
  48. George, T. J., Kaul, G., Nimalendran, M., & George, T. J. (1991). Estimation of the bid–ask spread and its components? A new approach. The Review of Financial Studies, 4, 623–656.CrossRefGoogle Scholar
  49. Glosten, L. R. (1987). Components of the bid–ask spread and the statistical properties of transaction prices. The Journal of Finance, 42, 1293–1307.CrossRefGoogle Scholar
  50. Glosten, L. R., & Milgrom, P. R. (1985). Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14, 71–100.CrossRefGoogle Scholar
  51. Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40, 3–73. doi: 10.1016/j.jacceco.2005.01.002.CrossRefGoogle Scholar
  52. Groß-Klußmann, A., & Hautsch, N. (2013). Predicting bid–ask spreads using long-memory autoregressive conditional poisson models. Journal of Forecasting, 32, 724–742. doi: 10.1002/for.2267.CrossRefGoogle Scholar
  53. Grüning, M. (2011a). Publizität börsennotierter Unternehmen. Wiesbaden: Gabler Verlag.CrossRefGoogle Scholar
  54. Grüning, M. (2011b). Artificial intelligence measurement of disclosure (AIMD). European Accounting Review, 20, 485–519.CrossRefGoogle Scholar
  55. Guidry, R. P., & Patten, D. M. (2012). Voluntary disclosure theory and financial control variables: An assessment of recent environmental disclosure research. Accounting Forum, 36, 81–90.CrossRefGoogle Scholar
  56. Healy, P. M., & Palepu, K. G. (1993). The Effect of Firms’ Financial Disclosure Strategies on Stock Prices. Accounting Horizons, 7, 1–11.Google Scholar
  57. Healy, P. M., & Palepu, K. G. (1995). The challenges of investor communication: The case of CUC International, Inc. Journal of Financial Economics, 38, 111–140.CrossRefGoogle Scholar
  58. Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management and social issues: What’s the bottom line? Strategic Management Journal, 22, 125–139.CrossRefGoogle Scholar
  59. Hou, K., Van Dijk, M. A., & Zhang, Y. (2012). The implied cost of capital: A new approach. Journal of Accounting and Economics, 53, 504–526.CrossRefGoogle Scholar
  60. Huang, R. D., & Stoll, H. R. (1997). The components of the bid–ask spread? A general approach reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The Review of Financial Studies, 10, 995–1034.CrossRefGoogle Scholar
  61. Hussain, S. M. (2011). The intraday behaviour of bid–ask spreads, trading volume and return volatility? Evidence from DAX30. International Journal of Economics and Finance, 3, 23–34.Google Scholar
  62. Kilian, T., & Hennigs, N. (2011). Unternehmerische Verantwortung zwischen Anspruch und Wirklichkeit: Eine empirische Analyse der Kommunikation CSR-relevanter Aspekte in Geschäftsberichten der DAX-30-Unternehmen von 1998–2009. uwf UmweltWirtschaftsForum, 19, 249–255.CrossRefGoogle Scholar
  63. Kothari, S. P., Li, X., & Short, J. E. (2009). The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: A study using content analysis. The Accounting Review, 84, 1639–1670.CrossRefGoogle Scholar
  64. Kyle, A. S. (1985). Continuous auctions and insider trading. Econometrica: Journal of the Econometric Society, 53, 1315–1335. doi: 10.2307/1913210.CrossRefGoogle Scholar
  65. Lakhal, F. (2008). Stock market liquidity and information asymmetry around voluntary earnings disclosures: New evidence from France. International Journal of Managerial Finance, 4, 60–75.CrossRefGoogle Scholar
  66. Lambert, R. A. (2009). Discussion of on the relation between expected returns and implied cost of capital. Review of Accounting Studies, 14, 260–268.CrossRefGoogle Scholar
  67. Lamberti, L., & Lettieri, E. (2008). CSR practices and corporate strategy: Evidence from a longitudinal case study. Journal of Business Ethics, 87, 153–168.CrossRefGoogle Scholar
  68. Lambert, R. A., Leuz, C., & Verrecchia, R. E. (2007). Accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45, 385–420.CrossRefGoogle Scholar
  69. Lang, M. H., & Lundholm, R. J. (1993). Cross-sectional determinants of analyst ratings of corporate disclosures. Journal of Accounting Research, 31, 246–271.CrossRefGoogle Scholar
  70. Lang, M. H., & Lundholm, R. J. (2000). Voluntary disclosure and equity offerings: Reducing information asymmetry or hyping the stock? Contemporary Accounting Research, 17, 623–662.CrossRefGoogle Scholar
  71. Leung, T. C. H., & Gray, R. (2016). Social responsibility disclosure in the international gambling industry: A research note. Meditari Accountancy Research, 24, 73–90. doi: 10.1108/MEDAR-01-2015-0001.CrossRefGoogle Scholar
  72. Leuz, C., & Verrecchia, R. E. (2000). The economic consequences of increased disclosure. Journal of Accounting Research, 38, 91–124. doi: 10.2307/2672910.CrossRefGoogle Scholar
  73. Lev, B. (1992). Information disclosure strategy. California Management Review, 34, 9–32.CrossRefGoogle Scholar
  74. Lin, F.-J. (2008). Solving multicollinearity in the process of fitting regression model using the nested estimate procedure. Quality & Quantity, 42, 417–426. doi: 10.1007/s11135-006-9055-1.CrossRefGoogle Scholar
  75. Madhavan, A., Richardson, M., & Roomans, M. (1997). Why do security prices change? A transaction-level analysis of NYSE stocks. The Review of Financial Studies, 10, 1035–1064.CrossRefGoogle Scholar
  76. Mansfield, E. R., & Helms, B. P. (1982). Detecting multicollinearity. The American Statistician, 36, 158–160. doi: 10.1080/00031305.1982.10482818.Google Scholar
  77. Michaels, A., & Grüning, M. (2016a). Glaubwürdigkeit von CSR-Konzepten - Die Einflüsse von CSR-Publizität und corporate identity auf CSR-reputation. uwf UmweltWirtschaftsForum, 24, 179–193. doi: 10.1007/s00550-016-0414-7.CrossRefGoogle Scholar
  78. Michaels, A., & Grüning, M. (2016b). Interne Treiber von CSR-Publizität: Der Einfluss von Corporate Identity. uwf UmweltWirtschaftsForum, 24, 315–324. doi: 10.1007/s00550-016-0421-8.CrossRefGoogle Scholar
  79. Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13, 187–221.CrossRefGoogle Scholar
  80. Nikolaeva, R., & Bicho, M. (2011). The role of institutional and reputational factors in the voluntary adoption of corporate social responsibility reporting standards. Journal of the Academy of Marketing Science, 39, 136–157.CrossRefGoogle Scholar
  81. O’Hara, M. (1998). Market microstructure theory. Hoboken: Blackwell Publishing Ltd.Google Scholar
  82. Orij, R. (2010). Corporate social disclosures in the context of national cultures and stakeholder theory. Accounting, Auditing & Accountability Journal, 23, 868–889.CrossRefGoogle Scholar
  83. Patten, D. M. (2002). The relation between environmental performance and environmental disclosure: A research note. Accounting, Organizations and Society, 27, 763–773. doi: 10.1016/S0361-3682(02)00028-4.CrossRefGoogle Scholar
  84. Plumlee, M. A., Brown, D., Hayes, R. M., & Marshall, R. S. (2015). Voluntary environmental disclosure quality and firm value: Further evidence. Journal of Accounting and Public Policy, 34, 336–361. doi: 10.1016/j.jaccpubpol.2015.04.004.CrossRefGoogle Scholar
  85. Rao, K., & Tilt, C. (2016). Board diversity and CSR reporting: an Australian study. Meditari Accountancy Research, 24, 182–210. doi: 10.1108/MEDAR-08-2015-0052.CrossRefGoogle Scholar
  86. Reverte, C. (2012). The impact of better corporate social responsibility disclosure on the cost of equity capital. Corporate Social Responsibility and Environmental Management, 19, 253–272.CrossRefGoogle Scholar
  87. Richardson, A. J., & Welker, M. (2001). Social disclosure, financial disclosure and the cost of equity capital. Accounting, Organizations and Society, 26, 597–616.CrossRefGoogle Scholar
  88. Roll, R. (1984). A simple measure of the implicit bid–ask spread in an efficient market. The Journal of Finance, 39, 1127–1139.CrossRefGoogle Scholar
  89. Schröder, D. (2007). The implied equity risk premium—An evaluation of empirical methods. Kredit und Kap, 40, 583–613.Google Scholar
  90. Sharfman, M. P., & Fernando, C. S. (2008). Environmental risk management and the cost of capital. Strategic Management Journal, 29, 569–592.CrossRefGoogle Scholar
  91. Simon, H. (2012). Hidden Champions - Aufbruch nach Globalia: Die Erfolgsstrategien unbekannter Weltmarktführer. Frankfurt am Main, New York: Campus Verlag.Google Scholar
  92. Soppe, A., Schauten, M., Soppe, J., & Kaymak, U. (2011). Corporate social responsibility reputation (CSRR): Do companies comply with their raised CSR expectations? Corporate Reputation Review, 14, 300–323. doi: 10.1057/crr.2011.21.CrossRefGoogle Scholar
  93. Spiegel, F., & Block, J. (2013). Regionale Bedeutung von Familienunternehmen. Zeitschrift für KMU und Entrep, 2, 7–34. doi: 10.3790/zfke.61.1-2.7.CrossRefGoogle Scholar
  94. Stoll, H. R. (1989). Inferring the components of the bid–ask spread: Theory and empirical tests. The Journal of Finance, 44, 115–134. doi: 10.1111/j.1540-6261.1989.tb02407.x.CrossRefGoogle Scholar
  95. Stoll, H. R. (2003). Market Microstructure. In G. M. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the Economics of Finance (pp. 553–604). Amsterdam: Elsevier.Google Scholar
  96. Stoll, H. R. (2006). Electronic trading in stock markets. The Journal of Economic Perspectives, 20, 153–174. doi: 10.1257/089533006776526067.CrossRefGoogle Scholar
  97. Surroca, J., Tribó, J. A., & Waddock, S. A. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 31, 463–490.CrossRefGoogle Scholar
  98. Sustainalytics. (2012). Die Nachhaltigkeitsleistungen deutscher Großunternehmen. Accessed March 15 2015.
  99. Sutantoputra, A. W. (2009). Social disclosure rating system for assessing firms’ CSR reports. Corporate Communications: An International Journal, 14, 34–48.CrossRefGoogle Scholar
  100. Verousis, T. (2013). Bid–ask spreads, commissions, and other costs. In K. H. Baker & H. Kiymaz (Eds.), Market microstructure in emerging and developed markets (pp. 327–343). Hoboken: Wiley.Google Scholar
  101. Verrecchia, R. E. (1983). Discretionary disclosure. Journal of Accounting and Economics, 5, 179–194. doi: 10.1016/0165-4101(90)90021-U.CrossRefGoogle Scholar
  102. Walden, W. D., & Schwartz, B. N. (1997). Environmental disclosures and public policy pressure. Journal of Accounting and Public Policy, 16, 125–154.CrossRefGoogle Scholar
  103. Welker, M. (1995). Disclosure policy, information asymmetry, and liquidity in equity markets. Contemporary Accounting Research, 11, 801–827. doi: 10.1111/j.1911-3846.1995.tb00467.x.CrossRefGoogle Scholar
  104. Yohn, T. L. (1998). Information asymmetry around earnings announcements. Review of Quantitative Finance and Accounting, 11, 165–182.CrossRefGoogle Scholar
  105. Young, S., & Marais, M. (2012). A multi-level perspective of CSR reporting: The implications of national institutions and industry risk characteristics. Corporate Governance: An International Review, 20, 432–450. doi: 10.1111/j.1467-8683.2012.00926.x.CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.Department of Economic Sciences and Media, Institute of Business Administration, Group Accounting and Managerial ControlIlmenau University of TechnologyIlmenauGermany

Personalised recommendations