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Institutional Isomorphism and CSR Reporting of Small and Medium Sized Enterprises
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The research problem
Directive 2014/95/EU (hereafter, “the CSR Directive”) mandates the disclosure of non-financial and diversity information by EU-listed firms with more than 500 employees and with either more than €20 million in total assets or more than €40 million in sales. However, the CSR Directive has been completely silent on the obligations of other unregulated firms. The fact that the CSR Directive applies only to a specific segment of the market, creating a gap between regulated and unregulated firms, raises a question of whether this CSR Directive has spillover effects beyond regulated firms that meet the number of employees, and the total assets or total sales thresholds.
Motivation
Our study is motivated by the unique settings that the CSR Directive provides for our research in that it mandates CSR reporting exclusively for EU-listed firms. While previous studies have primarily examined the effects of mandating CSR on the quality of CSR reporting and the level of CSR activities of regulated EU-listed firms, our research expands the scope by investigating the spillover effects of the CSR Directive on unregulated EU-listed firms.
Hypotheses
H1a: Unregulated EU-listed firms show higher quality of CSR reporting following the passage of the CSR Directive in 2014.
H1b: Unregulated EU-listed firms show higher quality of CSR reporting after the CSR Directive became effective in 2017.
H2a: Unregulated EU-listed firms show a higher level of CSR activities following the passage of the CSR Directive in 2014.
H2b: Unregulated EU-listed firms show a higher level of CSR activities after the CSR Directive became effective in 2017.
Target population
Our study provides timely insights to regulators and policymakers into the overall effects of future CSR reporting mandates. This is particularly important while the EU Parliament and Commission are reviewing the CSR Directive for potential replacement by the new Corporate Sustainability Reporting Directive (CSRD). Our study is also useful for researchers who are interested in observing the spillover effects of the CSR Directive on unregulated EU-listed firms.
Adopted methodology
Multivariate analysis using OLS regression and the difference-in-differences analysis using entropy balancing.
Analyses
Our sample period covers the years from 2010 to 2020 and, therefore, provides an avenue to address the effects of passing the CSR Directive over the period 2010 – 2016 and the effects of the mandatory implementation of the CSR Directive over the period 2014 – 2020. The results are interpreted through the lens of the theory of institutional isomorphism.
Findings
We provide evidence that following the passage of the CSR Directive in 2014, the CSR reporting quality of unregulated EU-listed firms has improved. This means that more unregulated EU-listed firms published CSR stand-alone reports or a section in their annual report, increased the level of their CSR information disclosed, have their CSR information externally audited, and have their CSR report published in accordance with the GRI or the OECD guidelines. We also find that EU-listed firms have increased the level of their CSR activities and the clarity of their CSR strategy. This trend has been more pronounced following the mandatory implementation of the CSR Directive in 2017.
Keywords: Directive 2014/95; CSR reporting; CSR activities; CSR Audit; GRI; OECD.
JEL Classifications: M14, M41, M48, Q56.
Many students of statistics and econometrics express frustration with the way a problem known as “bad control” is treated in the traditional literature. The issue arises when the addition of a variable to a regression equation produces an unintended discrepancy between the regression coefficient and the effect that the coefficient is intended to represent. Avoiding such discrepancies presents a challenge to all analysts in the data intensive sciences. This note describes graphical tools for understanding, visualizing, and resolving the problem through a series of illustrative examples. By making this “crash course” accessible to instructors and practitioners, we hope to avail these tools to a broader community of scientists concerned with the causal interpretation of regression models.
This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. We first outline key features of CSR reporting. Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for CSR and sustainability reporting for U.S. firms, including effects in capital markets, on stakeholders other than investors, and on firm behavior. We also discuss issues related to the implementation and enforcement of CSR and sustainability reporting standards as well as two approaches to sustainability reporting that differ in their overarching goals and materiality standards. Our analysis yields a number of insights that are relevant for the current debate on mandatory CSR and sustainability reporting. It also points scholars to avenues for future research.
We use entry by IKEA in four Swedish municipalities as a natural experiment to measure the effects of big-box retail entry on the revenues of incumbent firms in the hospitality sector. We further investigate whether the effects depend on the size of the local market before entry. Our results show a negative impact on the revenues of incumbents in Haparanda, Kalmar, and Karlstad, but insignificant effects in the metropolitan region of Gothenburg. As most firms in the hospitality sector are restaurants, we expect that our results are due to increased competition since all IKEA stores come with large, popular, and reasonably-priced restaurants.
There is extant research on theorization, conceptualization, determinants, and consequences of corporate social responsibility (CSR). However, what firms include in their CSR or sustainability reports are much less covered and are predominantly covered in case studies of individual firms. In this paper, we instead take a holistic view and simultaneously explore what firms around the globe currently disclose in these reports, more specifically we investigate if firms are shareholder or stakeholder focused. In this investigation, we check the alignment of the reports to the materiality framework of Sustainability Accounting Standards Board (SASB) which was developed having shareholders as the intended user. To estimate what firms disclose in CSR reports we used the unsupervised Bayesian machine learning approach latent Dirichlet allocation (LDA) developed by Blei et al. We conclude that firms target shareholders as the intended users of these reports, even in environments where stakeholder approach of management is argued to be more dominant. Methodologically, we contribute by demonstrating that topic modeling can enhance the objectivity in reviewing CSR-reports.
This paper aims to investigate the extent of anti-corruption reporting by ASEAN companies and examine whether coercive factors influence the level of disclosure. The authors adopt indicators from the Global Reporting Initiative version 4.0 to measure the extent of anti-corruption disclosures in 117 companies’ reports. Informed by a coercive isomorphism tenet drawn from the institutional theory, the authors propose that several institutional factors influence the extent of their voluntary disclosures. The findings reveal that a large degree of variability difference between the average levels of anti-corruption disclosure in Thailand (434 words) and the Philippines (149 words). The dependence on government tenders and foreign ownership are associated with the level of disclosure. Surprisingly, the United Nation Global Compact membership is not a significant determinant of anti-corruption reporting. This signifies that the membership in the international initiative does not correspond to individual company’s commitment to disclose anti-corruption information. In spite of significant efforts undertaken by global organizations to combat corruption, the level of anti-corruption disclosure is significantly different among the four countries under study. The disclosure of sensitive information such as the confirmed incidences of corruption cases requires careful consideration by the top management as it is subjected to legal implications and reputational risks. Thus, impression management can complement the coercive pressure in explaining the level of anti-corruption reporting. This study is among the first studies which explores the association between coercive factors and the level of anti-corruption disclosure in ASEAN region.
Since 2016, the European context has been characterised by the introduction of the Directive 95/2014/EU on mandatory non-financial reporting. The Directive has been transposed in the Italian context through the Legislative Decree 254/2016. However, following evidence previously collected from other jurisdictions, a high degree of scepticism by academics still characterises the debate on the effectiveness of this form of regulation. In fact, the literature highlights that the effects of a mandatory approach to non-financial reporting are limited to an increase in the annual quantity of information provided and not by an effective organizational change. Therefore, the contribution of our paper is twofold: a gap analysis between the overall degree of non-financial reporting quality between the years 2015 and 2017 and an empirical analysis, factors of which have impacted on the quality of non-financial reports prepared in 2017.
The article examines the effects of non-financial disclosure (NFD) on corporate social responsibility (CSR). We conceptualise trade-offs between two ideal types (government regulation and business self-regulation) in relation to CSR. Whereas self-regulation is associated with greater flexibility for businesses to develop best practices, it can also lead to complacency if firms feel no external pressure to engage with CSR. In contrast, government regulation is associated with greater stringency around minimum standards, but can also result in rigidity owing to a ‘one-size-fits-all’ approach. Given these potential trade-offs, we ask how mandatory non-financial disclosure has been shaping CSR practices and examine its potential effectiveness as a regulatory instrument. Our analysis of 24 OECD countries using the Asset4 database shows that firms in countries that require non-financial disclosure adopt significantly more CSR activities. However, we also find that NFD regulation does not lead to lower levels of corporate irresponsibility. Furthermore, our analysis demonstrates that, over time, the variation in CSR activities declines as firms adopt increasingly similar practices. Our study thereby contributes to understanding the impact of government regulation on CSR at firm level. We also discuss the limits of mandatory NFD in addressing regulatory trade-offs between stringency and flexibility in the field of corporate social responsibility.
Institutional theorists have long recognized that board interlocks serve as conduits of information, which can facilitate mimetic isomorphism under conditions of uncertainty. In contrast, the potential for coercive isomorphism—which is a response to direct coercion rather than uncertainty—to spread through board interlocks remains unknown. Drawing on the forced compliance literature from social psychology, we propose that coercive isomorphism exhibits a ripple effect, whereby conforming to coercive pressures leads directors to internalize their acquiescence and apply it to the other boards on which they sit. We test this relationship in the context of nonprofit interlocks on the boards of 209 publicly traded U.S. firms between 2010 and 2014, predicting that coercive pressure to minimize overhead in the nonprofit sphere—a phenomenon known as the nonprofit starvation cycle—spreads to corporate boards through nonprofit interlocks, leading the corporate boards to reduce firm investment in intangible assets. We find that this relationship manifests across our sample, but is strongest via interlocks held by powerful directors and in industries characterized by high investment in intangible assets. Finally, we also find that the coercive isomorphism ripple effect ultimately decreases firm value.
This chapter traces the evolution of the core theoretical constructs of isomorphism, decoupling and diffusion in organizational institutionalism. We first review the original theoretical formulations of these constructs and then examine their evolution in empirical research conducted over the past four decades. We point to unexamined and challenging aspects of this conceptual evolution, including the causal relationships among these core theoretical constructs. The chapter ends with a discussion of important theoretical frontiers to address in future research.
Directive 2014/95, in force since 2017, is the first European step that requires undertakings to provide mandatory non-financial information. The regulation concerns sustainability information, such as environmental, social, and employee information, human rights, and anti-corruption and bribery matters, and the disclosure of diversity policies for board members. According to the theoretical framework of Integrated Assessment (IA), the study aims to examine the expected impact of the Directive within the analysis of empirical evidence before the mandatory approach. This allows, on the regulatory side, evaluation of the quality of the regulation, therefore, whether the law achieves its policy objectives (i.e., if it fills the gap in the sustainability disclosure) and, on the firms’ side, to identify where companies have to invest to meet the legal requirements. The oil and gas sector is chosen as a sample for the study, because it is one of the most advanced sectors in sustainability disclosure, and if the regulation could impact on this sector, it would be the same for less-informed ones. The findings reveal a fair level of completeness of non-financial information, however, there are some areas that have to be improved to achieve the requirements of the Directive. The results also show the presence of overlap between financial and sustainability reports. In conclusion, the quality of regulation is good because it will also increase sustainability disclosure in an advanced sector, such as oil and gas, even if there is an open point on the location of information; companies in this sector will have to invest more in environmental and employee information in future years to comply with the Directive.
We investigate peer influence on managerial honesty under varying levels of transparency. In a laboratory experiment, managers report their costs to a superior to request budget. We manipulate whether the managers learn each other’s report and cost (full transparency) or the report but not the cost (partial transparency). The results show, first, that managers are susceptible to peer influence, as they join peers in reporting honestly and dishonestly both under full and partial transparency. Second, however, the effect of peer influence is asymmetric. While managers’ dishonesty increases much when peers’ reports are higher than they have expected, the opposite is not true. Third, partial transparency reinforces this asymmetry in peer influence. Unlike full transparency, it allows managers to substitute self-serving assumptions for missing information and to thus justify their own dishonesty more easily. The contribution of this study is twofold: It provides evidence for the interaction between transparency and peer influence and it highlights the role of (disappointed) expectations in fueling dishonesty. Our findings warn firms that especially partial transparency may spread dishonesty more than honesty. Transparency may also hurt firms that push honesty norms (as in ethics codes) but fail to enforce compliance, thus raising and disappointing managers’ expectations.
Normativity is assessed as we evaluate and compare the environmental reporting practices of a sample of French and Canadian companies through the lens of institutional legitimacy. More specifically, we examine how French and Canadian firms changed their reporting practices in reaction to the promulgation of laws and regulations in their respective countries, i.e., the NER and Grenelle II Acts in France, and National Instrument 51-102 and CSA Staff Notice NR 51-333, issued by the Canadian Securities Administrators. The firms’ voluntary disclosures according to GRI guidelines are also investigated. Substantive legitimacy theory is used to explore the level of substantive disclosures provided by Canadian and French firms. The findings reveal that the French parliamentary regime is more successful than the Canadian stock exchange regulation in triggering environmental reporting, and that the GRI combined with local regimes prompts environmental disclosures. Notwithstanding the improvements in environmental reporting under all three regimes, a very low level of substantive disclosure is noted in both countries.
This article presents a three-stage model of how isomorphic mechanisms have shaped corporate social responsibility (CSR) reporting practices over time. In the first stage, defensive reporting, companies fail to meet stakeholder expectations due to a deficiency in firm performance. In this stage, the decision to report is driven by coercive isomorphism as firms sense pressure to close the expectational gap. In the second stage, proactive reporting, knowledge of CSR reporting spreads and the practice of CSR reporting becomes normatively sanctioned. In this stage, normative isomorphism leads other organizations to look to CSR reporting as a potential new opportunity for achieving the firm’s goals. In the third stage, imitative diffusion, the defensive reporters together with the proactive reporters create a critical mass of CSR reporters that reaches a threshold at which the benefits of CSR reporting begin to outweigh any costs due to mimetic isomorphism. The study finds support for the model in an examination of Fortune 500 firms from 1997 to 2006.
Studies on why small and medium enterprises (SMEs) engage in pro-environmental behavior suggest that managers’ environmental responsibility plays a relatively greater role than competitiveness and legitimacy-seeking. These categories of drivers are mostly considered independent of each other. Using survey data and comparative case studies of wine firms in South Africa, this study finds that managers’ environmental responsibility is indeed the key driver in a context where state regulation hardly plays any role in regulating dispersed, rural firms. However, especially proactive firms are also characterized by expectations of competitiveness gains. The authors thus emphasize the role of institutional context and potential interaction effects between these drivers in explaining the reasons why SMEs engage in pro-environmental behavior in developing countries.
This article synthesizes the large but diverse literature on organizational legitimacy, highlighting similarities and disparities among the leading strategic and institutional approaches. The analysis identifies three primary forms of legitimacy: pragmatic, based on audience self-interest; moral, based on normative approval; and cognitive, based on comprehensibility and taken-for-grantedness. The article then examines strategies for gaining, maintaining, and repairing legitimacy of each type, suggesting both the promises and the pitfalls of such instrumental manipulations.
This study examines the externalities of mandatory IFRS adoption on firms' investment efficiency in 17 European countries. We use the ROA difference between the firm and its peers to proxy for the information on the peers' investment performance. We find that the spillover effect of a firm's ROA difference versus its foreign peers, but not domestic peers, on the firm's investment efficiency increases after IFRS adoption. We also find that increased disclosure by both foreign and domestic peers after IFRS adoption has a spillover effect on a firm's investment efficiency. Further, a firm's investment changes induced by its ROA difference versus foreign peers are more value-relevant after IFRS adoption, and those induced by increased disclosure by foreign peers under IFRS are value-relevant. Additional analyses reveal that our results are affected by legal enforcement strength, peer composition, and industry competition. Overall, we document positive externalities of mandatory IFRS adoption.
Data Availability: Data are available from commercial providers (Worldscope, DataStream, and I/B/E/S).
Since the end of the 1990s, sustainability reporting has become an increasingly relevant topic in business and academia. However, literature is still limited in quantity and no major reviews of the latest developments have thus far been presented. This paper provides a review of 178 articles dating from 1999 to 2011 from journals related to business, management, and accounting. Our aim is to identify what determinants of sustainability reporting are examined in the literature and to identify (in)consistencies, gaps, and opportunities for future research. We specifically illuminate factors influencing the adoption, the extent, and the quality of reporting. Based on our findings we provide an otherwise often missing link to theory (especially legitimacy, stakeholder, signaling, and institutional theory). Finally, possible future research themes are discussed by illuminating gaps and underexposed themes in the area of regulation and governance as well as reporting quality and stakeholder perception.
Drawing on the institutional view of legitimacy theory, we examine whether and under which conditions a policy tool, mandatory corporate social responsibility (CSR) reporting, enforced by constituents positively triggers firms to make substantive environmental responses. Using China's 2008 CSR reporting policy as a quasi‐natural experiment and the difference‐in‐differences estimation approach, the results reveal that after implementation of this policy, mandatory CSR reporting firms show substantially higher green innovation performance than non‐CSR reporting firms. We further find that this effect is stronger for firms located in areas with high environmental enforcement intensity, for state‐owned enterprises and for those with higher levels of media coverage. Moreover, we make a nuanced investigation on whether the media coverage is laden with a negative or positive tone, and find that both negative and positive coverage strengthen the relationship between mandatory CSR disclosure and green innovation.
We investigate real effects of a widespread corporate social responsibility (CSR) reporting mandate. In 2014, the European Union (EU) passed Directive 2014/95 (hereafter, “CSR Directive”), mandating large listed EU firms to prepare annual nonfinancial reports beginning from fiscal year 2017 onward. We document that firms within the scope of the directive respond by increasing their CSR activities and that they start doing so before the entry‐into‐force of the directive. These real effects are concentrated in firms that are plausibly more strongly affected by the directive, i.e., those with previously low levels of both CSR reporting and CSR activities. Using various alternative outcome variables (e.g., new CSR initiatives, improvements in CSR infrastructure, or firm performance), we show that these real effects reflect meaningful increases in CSR beyond firms’ potential attempts to “greenwash” CSR performance. Finally, we conduct tests that increase our confidence that the documented real effects are attributable to the CSR Directive and not general EU trends in CSR. This article is protected by copyright. All rights reserved
In the absence of random treatment assignment, the selection of appropriate control variables is essential to designing well-specified empirical tests of causal effects. However, the importance of control variables seems under-appreciated in accounting research relative to other methodological issues. Despite the frequent reliance on control variables, the accounting literature has limited guidance on how to select them. We evaluate the evolution in the use of control variables in accounting research and discuss some of the issues that researchers should consider when choosing control variables. Using simulations, we illustrate that more control is not always better and that some control variables can introduce bias into an otherwise well-specified model. We also demonstrate other issues with control variables, including the effects of measurement error and complications associated with fixed effects. Finally, we provide practical suggestions for future accounting research.
Data Availability: All data used are publicly available from sources cited in the text.
JEL Classifications: M40; M41; C18; C52.
PURPOSE
The aim of this paper is to examine the effects of the European Non-financial Reporting Directive (2014/95/EU) on firms' sustainability reporting practices, especially reporting quantity (i.e. availability of information) and quality (i.e. comparability and credibility).
DESIGN/METHODOLOGY/APPROACH
To test the main hypotheses, the authors select 905 treated firms from the EU 28 + 2 countries for a difference-in-differences regression analysis of dependent variables from the Refinitiv ESG database.
FINDINGS
The results suggest that the Directive influences sustainability reporting quantity and quality. Treated firms provide around 4 percentage points more sustainability information (i.e. availability) than propensity score matched control firms and are 19 percent more likely to receive external assurance (i.e. credibility). However, we also find that the Directive is not the decisive factor in the adoption of GRI guidelines (i.e. comparability).
RESEARCH LIMITATIONS/IMPLICATIONS
The analysis is restricted to large listed firms and does not account for small, mid-sized and private firms. Further, cross-cultural differences which influence sustainability reporting are controlled for but not investigated in detail. The authors derive several suggestions for future research related to the NFR Directive and its revision.
PRACTICAL IMPLICATIONS
The authors’ findings have practical implications for the future development of sustainability reporting in the EU and for other regulators considering the adoption of sustainability reporting.
ORIGINALITY/VALUE
This study is the first to provide evidence on the NFR Directive's reporting effects across multiple countries. It adds to the growing literature on the consequences of mandatory sustainability reporting. Additionally, this paper introduces a novel measurement approach sustainability information quantity that could benefit researchers.
Despite the rising use of environmental, social, and governance (ESG) ratings, there is substantial disagreement across rating agencies regarding what rating to give to individual firms. As what drives this disagreement is unclear, we examine whether a firm's ESG disclosure helps explain some of this disagreement. We predict and find that greater ESG disclosure actually leads to greater ESG rating disagreement. These findings hold using firm fixed effects and using a difference-in-differences design with mandatory ESG disclosure shocks. We also find that raters disagree more about ESG outcome metrics than input metrics (policies), and that disclosure appears to amplify disagreement more for outcomes. Last, we examine consequences of ESG disagreement and find that greater ESG disagreement is associated with higher return volatility, larger absolute price movements, and a lower likelihood of issuing external financing. Overall, our findings highlight that ESG disclosure generally exacerbates ESG rating disagreement rather than resolves it.
Data Availability: The data used in this study are publicly available from the sources cited in the text.
JEL Classifications: G24; M14; M41; Q56.
Civil rights statutes often prohibit two distinct types of discrimination, referred to as "disparate treatment" and "disparate impact." Disparate treatment is race-contingent decision making. But even decision making that is not affected by people's race may still produce an unjustified disparate impact. For example, a race-neutral transplantation preference for allografts with partial antigen matches might produce an unjustified disparate impact on African Americans with end-stage renal disease. The transplantation preference might make it harder for African Americans to receive a transplant without significantly increasing the chance of transplant survival. Because disparate impact and disparate treatment claims have distinct elements, they require distinct methods of statistical testing. This article analyzes three different ways of testing unjustified disparate impacts in organ transplantation, which I will call the traditional test, the omitted variable test, and the outcome test. Each of these methods of testing for disparate impact are attuned to the problem of "included variable" bias. Controlling statistically for nonracial variables may actually bias the analysis and mask the existence of unjustified disparate impacts.
Most textbooks on regression focus on theory and the simplest of examples. Real statistical problems, however, are complex and subtle. This is not a book about the theory of regression. It is about using regression to solve real problems of comparison, estimation, prediction, and causal inference. Unlike other books, it focuses on practical issues such as sample size and missing data and a wide range of goals and techniques. It jumps right in to methods and computer code you can use immediately. Real examples, real stories from the authors' experience demonstrate what regression can do and its limitations, with practical advice for understanding assumptions and implementing methods for experiments and observational studies. They make a smooth transition to logistic regression and GLM. The emphasis is on computation in R and Stan rather than derivations, with code available online. Graphics and presentation aid understanding of the models and model fitting.
As CEOs and business leaders navigate a world of complex global challenges, sustainability is no longer optional but a business imperative. In this book, two sustainability leaders with decades of experience – Henrik Henriksson, CEO of Scania and Elaine Weidman Grunewald, Co-founder of the AI Sustainability Center, and former Chief Sustainability & Public Affairs Officer at Ericsson – offer a simple but powerful three-step model for leading an organization on a sustainability transformation journey that aims at big, audacious, world-changing goals.
Honest about the dilemmas but bullish on the opportunities, the authors advise leaders on how to accelerate sustainability in their organizations told through a Swedish lens, where the country’s values and culture permeate the boardroom and the C-suite, bringing a unique clarity and conviction to leading with integrity.
In practical insights gleaned from the authors’ own experience, the book takes leaders through the three phases of sustainability leadership: from establishing a solid foundation rooted in purpose, culture, values, principles and consistent, credible leadership, to integrating sustainability into the core business, and then to executing a vision that not only shifts the direction of the company but can change an entire industry, and even the world.
Throughout the book, more than 25 interviews with other leading CEOs of Swedish companies as well as successful start-ups, investors, economists, and other experts illuminate the path to sustainability leadership from different perspectives. These are complemented by case studies describing how companies got it right – or turned themselves around after getting it very, very wrong.
With this hands-on insiders’ guide, CEOs and C-suite leaders can take sustainability to the next level. This is the encouragement and inspiration business leaders need to move past incremental improvement at a time when exponential, world-changing action is more urgent than ever.
While institutional theorists have long viewed governmental mandates as a prototypical coercive pressure generating homogeneous organizational compliance, we suggest that such mandates are often subject to enforcement uncertainty, resulting in a pressure more aptly characterized as “semicoercive” and a compliance result more aptly characterized as heterogeneous. We advance and test a theoretical framework to predict the specific form of heterogeneous compliance in semicoercive contexts, with particular attention to the differential sensitivity of firms to pressures to comply, based on differences in their specific legal, political, and social context. We use the setting of a mandated corporate governance reform in China requiring listed Chinese firms to add independent directors and find general evidence of noncompliance and more specific evidence consistent with the predictions from our sociopolitical framework. We discuss the implications of our theoretical approach and findings for future research on institutional environments, governmental regulations, organizational compliance, and corporate governance.
The launch of the European New Green Deal represents a strategic plan developed in Europe to favor the transition to more sustainable business models. One of the main initiative is represented by the revision of the Directive 95/2014/EU. This revision came in response to several criticisms of the directive's application to European Public Interest Entities, including the low degree of comparability that characterize the resulting non-financial declarations. This research paper analyzes how 70 Italian PIEs adhere to the comparability principle when preparing their non-financial declarations. Furthermore, a difference-indifferences analysis (DID) has been performed to assess the impacts of Directive 95/2014/EU on non-financial declarations' comparability. Our results highlight how the comparability of non-financial reports is an objective not yet achieved. In this regard, the revision of Directive 95/2014 / EU will represent an opportunity for policy makers to address this critical issue.
This paper aims to investigate how the shift from voluntary to mandatory nonfinancial information started by the European Union (EU) Directive 95/2014 may influence corporate practices. In particular, this research presents a paradigmatic case study to highlight relevant changes in reporting strategy and corporate governance adopted by an Italian listed company that never disclosed sustainability information before the transposition of the EU Directive into the Legislative Decree 254/2016. In this scenario, new obligations on nonfinancial reporting were not perceived as mere additional administrative duties and the nonfinancial statement became an opportunity to communicate company's paths towards sustainability, guaranteeing transparency and greater stakeholders' engagement. Our findings go beyond prior studies pointing out how organisations adopt strategic and tactical responses to the pressure stemming from the external environment. Additionally, it highlights the pivotal function played by the internal audit in setting up the direction of change. This research has theoretical and practical contributions for academic communities, policymakers and practitioners.
We construct an event-based outcome measure of firm-level environmental, social, and governance (ESG) impact for public and private firms globally from 2007 to 2015 using data from RepRisk. Then we measure the societal impact of corporate social responsibility (CSR) engagements using participation in the United Nations Global Compact (UNGC) as a proxy. We demonstrate a robust and striking difference between public and private firms: whereas private firms significantly reduce their negative ESG incident levels after UNGC engagements, public firms fail to do so and are more likely to engage in decoupled CSR actions—actions with no subsequent real impact. We then conduct a series of in-depth analyses to examine possible economic mechanisms. Our results are most consistent with shareholder–stakeholder conflicts of interest being the main moderator of decoupling. The intensity of this conflict is further moderated by three factors: ownership type, proximity to final consumers on the value chain, and specific ESG incident types. Other possible mechanisms, such as selective entry into UNGC and heterogeneities in media exposure, country representation, and entry timing, do not survive our analysis. Our results suggest that existing CSR engagements and one-size-fits-all CSR policy mandates might not necessarily lead to better societal outcomes, and a multi-tiered policy targeting different ownership and industry types might be more efficient at maximizing ex post ESG benefits.
This paper was accepted by Bruno Cassiman, business strategy.
This study investigates the sustainability disclosure effects of the introduction of the Companies Act 2006 Regulations 2013 in the United Kingdom. The regulation mandates the disclosure of information on greenhouse gas emissions, gender distribution and human rights issues. We examine two research questions: first, whether firms increased disclosure on the mandated topics after the regulation became effective relative to a control group, and second, whether a potential increase in disclosure is moderated by firms’ reporting incentives, namely, firms’ capital market visibility, growth orientation, governance structure, prior voluntary sustainability disclosure levels and critical media coverage. Our sample consists of the FTSE-350 firms and a matched control group of US firms. We use textual analysis to assess the disclosure of the mandated sustainability topics in firms’ annual reports. Specifically, we examine two types of disclosure, namely, the disclosure of the mandated key performance indicators and the narrative disclosure. Our results reveal a significant increase for both types of disclosure relative to the control group. Overall, this treatment effect tends to be smaller for firms with higher reporting incentives, i. e., reporting incentives mitigate the regulatory effect. Taken together, our results suggest that both standards and reporting incentives shape firms’ sustainability disclosure level.
Civil rights statutes often prohibit two distinct types of discrimination, referred to as "disparate treatment" and "disparate impact." Disparate treatment is race-contingent decision making. But even decision making that is not affected by people's race may still produce an unjustified disparate impact. For example, a race-neutral transplantation preference for allografts with partial antigen matches might produce an unjustified disparate impact on African Americans with end-stage renal disease. The transplantation preference might make it harder for African Americans to receive a transplant without significantly increasing the chance of transplant survival. Because disparate impact and disparate treatment claims have distinct elements, they require distinct methods of statistical testing. This article analyzes three different ways of testing unjustified disparate impacts in organ transplantation, which I will call the traditional test, the omitted variable test, and the outcome test. Each of these methods of testing for disparate impact are attuned to the problem of "included variable" bias. Controlling statistically for nonracial variables may actually bias the analysis and mask the existence of unjustified disparate impacts.
Abstract
The relationship between sustainability performance and sustainability disclosure remains ambiguous, both theoretically and empirically. Voluntary disclosure theory would suggest that the relationship should be positive, whereas legitimacy theory points toward a negative relationship. However, the empirical evidence regarding this relationship is mixed, which indicates that the two theories are not necessarily contradictory but that they are instead two sides of the same coin. This paper refines the theoretical reasoning associated with the two theories and provides empirical evidence for their reconciliation by moving the focus of inquiry from the quantity of sustainability disclosure toward its quality. Our results reveal that – consistent with voluntary disclosure theory – superior sustainability performers choose high-quality sustainability disclosure to signal their superior performance to the market. In addition, based on legitimacy theory, poor sustainability performers prefer low-quality sustainability disclosure to disguise their true performance and to simultaneously protect their legitimacy. The results remain robust to various additional analyses. Thus, the paper indicates that the two theories dovetail with one another by redirecting the focus toward the quality of sustainability disclosure.
Using newly available materiality classifications of sustainability topics, we develop a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings. This allows us to present new evidence on the value implications of sustainability investments. Using both calendar-time portfolio stock return regressions and firm-level panel regressions, we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues. These results are confirmed when we analyze future changes in accounting performance. The results have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions.
Most questions in social and biomedical sciences are causal in nature: what would happen to individuals, or to groups, if part of their environment were changed? In this groundbreaking text, two world-renowned experts present statistical methods for studying such questions. This book starts with the notion of potential outcomes, each corresponding to the outcome that would be realized if a subject were exposed to a particular treatment or regime. In this approach, causal effects are comparisons of such potential outcomes. The fundamental problem of causal inference is that we can only observe one of the potential outcomes for a particular subject. The authors discuss how randomized experiments allow us to assess causal effects and then turn to observational studies. They lay out the assumptions needed for causal inference and describe the leading analysis methods, including, matching, propensity-score methods, and instrumental variables. Many detailed applications are included, with special focus on practical aspects for the empirical researcher.
This article synthesizes the large but diverse literature on organizational legitimacy, highlighting similarities and disparities among the leading strategic and institutional approaches. The analysis identifies three primary forms of legitimacy: pragmatic, based on audience self-interest; moral, based on normative approval: and cognitive, based on comprehensibility and taken-for-grantedness. The article then examines strategies for gaining, maintaining, and repairing legitimacy of each type, suggesting both the promises and the pitfalls of such instrumental manipulations.
Applied econometrics, known to aficionados as 'metrics, is the original data science. 'Metrics encompasses the statistical methods economists use to untangle cause and effect in human affairs. Through accessible discussion and with a dose of kung fu-themed humor, Mastering 'Metrics presents the essential tools of econometric research and demonstrates why econometrics is exciting and useful. The five most valuable econometric methods, or what the authors call the Furious Five--random assignment, regression, instrumental variables, regression discontinuity designs, and differences in differences--are illustrated through well-crafted real-world examples (vetted for awesomeness by Kung Fu Panda's Jade Palace). Does health insurance make you healthier? Randomized experiments provide answers. Are expensive private colleges and selective public high schools better than more pedestrian institutions? Regression analysis and a regression discontinuity design reveal the surprising truth. When private banks teeter, and depositors take their money and run, should central banks step in to save them? Differences-in-differences analysis of a Depression-era banking crisis offers a response. Could arresting O. J. Simpson have saved his ex-wife's life? Instrumental variables methods instruct law enforcement authorities in how best to respond to domestic abuse. Wielding econometric tools with skill and confidence, Mastering 'Metrics uses data and statistics to illuminate the path from cause to effect. Shows why econometrics is important; Explains econometric research through humorous and accessible discussion; Outlines empirical methods central to modern econometric practice; Works through interesting and relevant real-world examples.
Stakeholder inclusion in organizational decision‐making, and the resulting issue of value creation, is one of the thorny problems that stakeholder theory has sought to address. Yet progress has been slow, we suggest, because present accounting theory and practice does not address the decision‐making needs of all stakeholders who are at risk due to the activities of organizations. In this paper we develop a transdisciplinary theory of value‐creation stakeholder accounting (VCSA) based on stakeholder risk‐sharing as a superior rationale for stakeholder inclusion. We introduce value‐creation stakeholder partnerships (VCSPs) as a promising mechanism for the implementation of VCSA. VCSA is derived from a fusion of accounting, value‐creation/entrepreneurship, and stakeholder theory, and the VCSP mechanism emerges from distinguishing proprietary‐convention (partnership) from entity‐convention (corporate) accounting. Using this framing we summarize and situate the articles in this Special Issue on Stakeholder Accounting.
Through a critique of existing financial theory underlying current accounting practices, and reapplication of this theory to a broad group of stakeholders, this paper lays a normative foundation for a revised perspective on the responsibility of the public accounting profession. Specifically, we argue that the profession should embrace the development of standards for reporting information important to a broader group of stakeholders than just investors and creditors. The FASB has recently moved in the opposite direction. Nonetheless, an institution around accounting for stakeholders continues to grow, backed by a groundswell of support from many sources. Based on institutional theory, we predict that this institution and the forces supporting it will cause changes in the public accounting profession, even if through coercion. We also provide examples of stakeholder accounting, building from the premise that a primary responsibility of accounting is to provide information to address the risk management needs of stakeholders. This article is protected by copyright. All rights reserved.
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.
Interpretivist and critical accounting researchers have long challenged the shareholder focus of conventional accounting, calling for new approaches that promote accountability to stakeholders and participatory governance. One proposal is for dialogic accountings that take pluralism seriously and enable critical reflection on organizational practices from diverse socio-political perspectives. Dialogic accounting aims to counter narrow managerialist framings and address constituencies poorly served by traditional accounting. However, those favouring pluralist approaches face significant challenges in addressing entrenched ideologies and power relations. Rather than trying to address these challenges solely from within accounting, much can be learned from disciplinary fields that demonstrate sustained interest in pluralistic analysis and engagement. Here, we focus on the insights science and technology studies (STS) provides on opening up and closing down participatory governance, understanding knowledge-power dynamics and implications for stakeholder value creation. This article is protected by copyright. All rights reserved.
Written by one of the preeminent researchers in the field, this book provides a comprehensive exposition of modern analysis of causation. It shows how causality has grown from a nebulous concept into a mathematical theory with significant applications in the fields of statistics, artificial intelligence, economics, philosophy, cognitive science, and the health and social sciences. Judea Pearl presents and unifies the probabilistic, manipulative, counterfactual, and structural approaches to causation and devises simple mathematical tools for studying the relationships between causal connections and statistical associations. The book will open the way for including causal analysis in the standard curricula of statistics, artificial intelligence, business, epidemiology, social sciences, and economics. Students in these fields will find natural models, simple inferential procedures, and precise mathematical definitions of causal concepts that traditional texts have evaded or made unduly complicated. The first edition of Causality has led to a paradigmatic change in the way that causality is treated in statistics, philosophy, computer science, social science, and economics. Cited in more than 5,000 scientific publications, it continues to liberate scientists from the traditional molds of statistical thinking. In this revised edition, Judea Pearl elucidates thorny issues, answers readers’ questions, and offers a panoramic view of recent advances in this field of research. Causality will be of interests to students and professionals in a wide variety of fields. Anyone who wishes to elucidate meaningful relationships from data, predict effects of actions and policies, assess explanations of reported events, or form theories of causal understanding and causal speech will find this book stimulating and invaluable.
Argues that the formal structure of many organizations in post-industrial society dramatically reflect the myths of their institutional environment instead of the demands of their work activities. The authors review prevailing theories of the origins of formal structures and the main problem which those theories confront -- namely, that their assumption that successful coordination and control of activity are responsible for the rise of modern formal organization is not substantiated by empirical evidence. Rather, there is a great gap between the formal structure and the informal practices that govern actual work activities. The authors present an alternative source for formal structures by suggesting that myths embedded in the institutional environment help to explain the adoption of formal structures. Earlier sources understood bureaucratization as emanating from the rationalization of the workplace. Nevertheless, the observation that some formal practices are not followed in favor of other unofficial ones indicates that not all formal structures advance efficiency as a rationalized system would require. Therefore another source of legitimacy is required. This is found in conforming the organization's structure to that of the powerful myths that institutionalized products, services, techniques, policies, and programs become. (CAR)
A bestseller since its First Edition, Institutions and Organizations remains the key source for a comprehensive overview of the institutionalist approach to organization theory. W. Richard Scott presents a historical overview of the theoretical literature, an integrative analysis of current institutional approaches, and a review of empirical research related to institutions and organizations. He offers an extensive review and critique of institutional analysis in sociology, political science, and economics as it relates to recent theory and research on organizations.
For four decades, reporting on corporate responsibility by businesses has been the subject of empirical research. In the 1970s and 1980s, studies mostly originated from Anglo-Saxon and Western European countries. During the last two decades research on responsibility reporting was increasingly undertaken in emerging and developing countries as well – always following the reporting practices of the respective businesses. Consequentially, a very large number of studies exist today. Many of these have empirically investigated the determinants of responsibility reporting and examined whether internal factors like size and industry or external factors like stakeholder pressures have an impact on disclosure. Thus, the purpose of the following paper is twofold. First, it seeks to provide an overview of the existing literature in order to facilitate further research. Overall, 186 studies have been examined for the determinants which they considered and have been grouped according to their geographical origin. This provides for an analysis of whether academics from different regions have taken different approaches to the empirical examination of responsibility reporting and if their results differed. The findings show that scholars across regions have taken different paths in empirical research, but indications for a variation in the impact of specific determinants on reporting are weak. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment
Corporate social responsibility (CSR) is increasingly being promoted as an instrument for global governance to address the regulatory vacuum surrounding transnational business activities and as a method for encouraging business to contribute to sustainable development at the national level. Originally a business-driven, American concept, CSR has now been adopted and promoted by a wide range of governments and multilateral institutions. However, the socio-political model underlying CSR is far from neutral and may conflict with existing models in the societies in which it is introduced. In this article a typology of possible governmental interpretations of CSR is developed, and how CSR is transformed and adapted in its meeting with Nordic governments in order to fit the “Nordic Model” of state-market-society relations is analyzed. The analysis suggests that pre-existing political-economic institutions and cultural norms deeply affect the interpretation of CSR, and that this, when combined with ongoing national political processes, leads to a highly transformed concept of CSR.
Despite numerous efforts to bring about a clear and unbiased definition of CSR, there is still some confusion as to how CSR should be defined. In this paper five dimensions of CSR are developed through a content analysis of existing CSR definitions. Frequency counts are used to analyse how often these dimensions are invoked. The analysis shows that the existing definitions are to a large degree congruent. Thus it is concluded that the confusion is not so much about how CSR is defined, as about how CSR is socially constructed in a specific context. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.