Author Stephanie Termeulen

Student number 304834

Supervisor K.E.H. Maas

Date July 2011

Erasmus University Rotterdam

Erasmus School of Economics

The influence of Corporate Social Responsibility reporting on reputation

Thesis: Accounting, Auditing and Control

2 | P a g e

Preface

Deze scriptie heb ik geschreven ter afronding van mijn Master opleiding, Accountancy, Auditing and

Control aan de Erasmus Universiteit. Graag wil ik mijn begeleidster, Karen Maas bedanken voor haar

kritische feedback op mijn scriptie.

De afgelopen jaren heb ik intens genoten van mijn studententijd aan de Erasmus Universiteit. Vooral

mijn studietijd aan de Haskayne School of Business in Calagry was onvergetelijk. Deze mooie tijd had ik

niet kunnen beleven zonder steun van mijn ouders, zussen, vriend en vrienden. Hen wil ik hiervoor graag

bedanken.

Stephanie Termeulen

Oude Wetering, 15 juli 2011

3 | P a g e

4 | P a g e

Abstract

In this paper the impact of Corporate Social Responsibility (CSR) reporting on reputation is investigated.

Disclosed CSR information is observed by stakeholders. By publishing a CSR report a company provides

its stakeholders with more information about the company. When a CSR report is of higher quality,

stakeholders are provided with more transparent information. The agency theory, information

asymmetry, legitimacy theory and stakeholder theory suggest that due to a CSR report an impact on the

reputation is expectable. In this paper it is to be expected that higher CSR reporting quality increases the

reputation of a company.

CSR reporting quality is measured with the application level that is provided by the Global Reporting

Initiative (GRI) Report List. The reputation index from Fortune 500 is used as proxy for the reputation.

The CSR reporting of current year affects the reputation of the next year. The timeframe of this paper

contains CSR reporting from 2005 till 2009. From this selected time period 85, 106, 138, 167 and 175

respectively data points are observed.

Unlike prior studies, this paper concludes that CSR reporting has no influence on reputation. The

outcome of this paper indicates that other variables than CSR reporting has an influence on the

reputation of a company.

5 | P a g e

6 | P a g e

Table of Contents

Chapter 1 Introduction..............................................................................................................................11

1.1 Research question and research method.................................................................................12

1.2 Relevance..................................................................................................................................14

1.3 Structure....................................................................................................................................15

Chapter 2 Theoretical Background............................................................................................................16

2.1 Disclosures.......................................................................................................................................16

2.1.1 Financial disclosure...................................................................................................................16

2.1.2 Voluntary disclosure.................................................................................................................17

2.1.4 Summary disclosures................................................................................................................17

2.2 Corporate Social Responsibility.......................................................................................................18

2.2.1 Definition of Corporate Social Responsibility............................................................................18

2.2.2 Developments in Corporate Social Responsibility.....................................................................20

2.2.3 Corporate Social Responsibility reporting.................................................................................21

2.2.4 Corporate Social Responsibility reporting guidelines................................................................21

2.2.5 Summary Corporate Social Responsibility................................................................................23

2.3 Positive Accounting Theory.............................................................................................................23

2.3.1 Agency theory...........................................................................................................................24

2.3.2 Information asymmetry............................................................................................................26

2.3.3 Legitimacy theory.....................................................................................................................28

2.3.4 Stakeholder theory...................................................................................................................30

2.3.5 Summary Voluntary Disclosures and Positive Accounting Theory............................................31

Chapter 3 Literature Review......................................................................................................................32

3.1 Incentives of Corporate Social Responsibility strategy and reporting..............................................32

3.1.1 Corporate Social Responsibility strategy and reporting incentives..........................................32

3.1.2 Implementing Corporate Social Responsibility strategy and report.........................................37

3.1.5 Summary incentives Corporate Social Responsibility strategy and report................................39

3.2 Impacts of Corporate Social Responsibility Report..........................................................................39

7 | P a g e

3.2.1Forecast accuracy......................................................................................................................39

3.2.2 Public sentiment.......................................................................................................................42

3.2.3 Financial impacts......................................................................................................................44

3.2.4 Summary impacts.....................................................................................................................48

Chapter 4 Hypotheses development.........................................................................................................50

4.1 Development of the main hypothesis..............................................................................................50

4.2 Difference compared to previous studies........................................................................................52

4.3 Development of sub hypotheses.....................................................................................................54

4.4 Summary hypothesis development.................................................................................................57

Chapter 5 Methodology............................................................................................................................58

5.1 Sample.............................................................................................................................................58

5.1.1 Used databases.........................................................................................................................58

5.1.2 Development sample and time period.....................................................................................59

5.2 Methodology of statistical research................................................................................................60

5.3 Data.................................................................................................................................................61

Chapter 6 Analytical Results......................................................................................................................64

6.1 Descriptive analysis..........................................................................................................................64

6.2 Statistical Results.............................................................................................................................67

6.2.1 Correlation................................................................................................................................67

6.2.2 Regression................................................................................................................................72

Chapter 7 Conclusion.................................................................................................................................80

7.1 Discussion........................................................................................................................................80

7.2 Implications.....................................................................................................................................82

7.3 Limitations and further research.....................................................................................................83

8 | P a g e

References.................................................................................................................................................84

Appendix A: Companies included in sample..............................................................................................88

Appendix B: Distribution CSR report levels over all variables....................................................................98

9 | P a g e

Chapter 1 Introduction

The last decades environmental and social related impact of companies is under rising attention of the

public. The ‘Deepwater Horizon Oil Split’ of April 2010 resulted in negative public attention of the oil

company, British Petroleum (BP). During three months oil was continuously spilling into the Gulf of

Mexico. The enormous environmental damage due to BP’s negligence was widely described in the

worldwide media. Besides companies’ environmental issues, social consequences and social

responsibility also face attention of the public. The public attention to social issues is reflected in the

scandal of the British newspaper ‘News of the World’. The newspaper was suspected of illegally

monitoring private phone calls. This scandal was widely described in the media. The associated negative

attention about ‘News of the World’ made the owner of the newspaper decide to immediately abolish

the newspaper.

The rise of attention for environmental and social related impact is reflected in increasing attention for

Corporate Social Responsibility (CSR). Besides the society, companies also became more aware of their

environmental and social side. The increased awareness of environmental and social impact results in

the implementation of CSR activities within a company. CSR activities are implemented to contribute to

the economic performances of the company and to benefit society. In a CSR report the CSR

performances are summarized, when the CSR report is disclosed stakeholders are provided with more

transparency.

Since the early nineties a lot of research has been done on the topic of CSR. The impact of CSR is mainly

examined on the financial performances of the company. The study of Margolis and Walsh (2003)

analyzed the outcomes of 127 prior studies and found a positive relation between CSR performances

and financial performances. Wood (2010) argued that the relation between CSR performances and

financial performances is already well established and that CSR research should be more focused on

society and stakeholders. Where the studies of Margolis et al. (2003) and Wood (2010) investigated the

CSR performances, this paper investigates the CSR reporting. In this paper the impact of CSR reporting is

examined, the quality of CSR performance is not taken into consideration, but the quality of the CSR

report is.

The quality of a CSR report benefits the company’s stakeholders. When a CSR report is disclosed,

stakeholders acquire CSR information of the company. If the CSR report is of high quality, stakeholders

are provided with reliable CSR information. This reliable information increases the transparency. The

10 | P a g e

stakeholders’ impression of the company changes due to the provided information. In this paper the

impact of CSR reporting quality on the reputation is examined. This reputation is the impression of a

company of all stakeholders together. The impression of stakeholders of a company is influenced by CSR

information.

Existing studies used the term public sentiment, to investigate stakeholders’ impression of a company.

In this paper reputation is used, to investigate stakeholders’ impression. Reputation is a more direct

term to examine stakeholders’ impression about a company. In this paper no distinction is being made

between public sentiment of existing studies and reputation of this paper.

1.1 Research question and research method

The research question of this paper is:

What is the impact of Corporate Social Responsibility reporting on reputation?

To answer the research question, different CSR related topics are investigated in advance. First the

definition of CSR should be defined. Also the characteristics of CSR reporting should be investigated. The

positive accounting theory provides theories which predicts and explains CSR. Description of the agency

theory, information asymmetry, legitimacy theory and stakeholder theory are provided to investigate

incentives of CSR and CSR reporting. To implement CSR into the company, the company should go

through different stages, these different stages are described. Finally, the investigated influence of CSR

reporting on reputation from prior research is described.

The research question is answered by empirical research. The impact of CSR reporting is measured with

CSR reporting quality. The CSR report quality is observed from the CSR report level provided by the

Global Reporting Initiative (GRI) Report List. This CSR report level indicates the degree of conformity

with GRI reporting guidelines of the CSR report. The application level is determined for CSR reports

which are voluntary submitted in the GRI report list. The used proxy for reputation is the reputation

index. This index is based on nine components and is yearly compiled. The CSR report is disclosed after

the reported year and influences the reputation of the year after the reported year. In the reputation

index database, reputation indices from 2006 are available, therefore this paper uses the CSR reporting

time period 2005 up till and including 2009. The research question is answered by the main hypothesis

11 | P a g e

and sub hypotheses. These hypotheses are tested with a regression and a correlation. The hypotheses

are:

Main hypothesis:

CSR reporting quality increases the reputation of a company.

Sub hypotheses:

The relationship between CSR reporting quality and the reputation is positively influenced by

larger companies.

The relationship between CSR reporting quality and the reputation is positively influenced by

better financial performances.

The relationship between CSR reporting quality and the reputation is positively influenced by

higher general selling and administrative expenses to sales.

The relationship between CSR reporting quality and the reputation is influenced by regions of

companies.

The relationship between CSR reporting quality and the reputation is influenced by industries

of companies.

Companies for which all relevant data were available are included in the sample. For the year 2005 up

till and including 2009; 85, 106, 138, 167 and 175 respectively data points were available. The years are

individually tested, otherwise the results will be biased. The influence of CSR reporting quality on

reputation is tested by the correlation and the regression of the reputation index and the CSR report

level.

12 | P a g e

1.2 Relevance

The investigated relation between CSR reporting quality and reputation provides benefits for the

scientific world, companies and society. Below the relevance for scientific world, companies and society

is explained. In the study of Clarkson, Hua Fang, Li and Richardson (2010) a positive relation is found

between CSR reporting and public sentiment. But in this study, public sentiment is measured with the

Janis Fadner coefficient. This coefficient is based on the amount of negative and positive

environmentally and socially related articles. The Janis Fadner coefficient is not the most reliable

measurement to investigate the public sentiment. This coefficient suggests that companies with equal

amounts of negative and positive articles have the same public sentiment. The study of Clarkson et al.

(2010) takes the influence of CSR reporting into consideration but the studies of Brown and Dacin (1997)

and Ittner et al. (1998) take the influence of CSR on public sentiment into consideration. These studies

investigate the relation between CSR and public sentiment with a field study. The field study evaluates

products based on the customer satisfaction. Product evaluations by (potential) customers’ satisfaction

levels are no exact measurements to investigate the public sentiment. It is hard to accurately evaluate

services of companies. Some companies producing more than one product, when one product is

evaluated not a right representation is provided of the company.

The scientific world also benefits from the investigated relation between CSR quality reporting and

reputation because of the lack of CSR research which is focused on stakeholder and society. From this

paper, society benefits afford, there is investigated if CSR reporting influence the reputation. An

investigation is performed, where the reputation is dependent on. When no relationship is found,

society does not observe the CSR reporting quality. This paper is also of relevance for companies

because it researches if CSR reporting quality leads to an improvement of a company’s reputation. If

evidence is found for a positive relation, companies benefit from providing high quality CSR reports. If

no evidence is found, companies can change their way of CSR reporting to achieve better results with

their CSR disclosure. Investigating the relation between CSR reporting quality and reputation is therefore

beneficial for society.

13 | P a g e

1.3 Structure

This paper is outlined as follows, in the second chapter the theoretical background of CSR reporting is

discussed. Disclosures in general, the definition of CSR and the relation of CSR with the positive

accounting theory are described. In the third chapter the literature review is provided. Also the

incentives and impacts of CSR and CSR reporting are presented. The hypotheses are introduced in

chapter four. The methodology, which is used to test the hypotheses, is described in chapter five.

Methodology, statistical research and data are part of chapter five. In chapter six the analytical results

are presented, these results are composed of the descriptive and statistical results. Finally in chapter

seven, the conclusion is stated.

14 | P a g e

Chapter 2 Theoretical Background

To provide a complete understanding of CSR reporting, in this chapter a theoretical background is given

about communication information. This chapter starts with describing, different types of communicating

information, financial disclosures and voluntary disclosures are introduced. Thereafter CSR and CSR

reporting are discussed. The definition of CSR is explained, the CSR report and the guidelines for

providing a CSR report are discussed. The final part of this chapter explains the positive accounting

theory and the relation with CSR reporting.

2.1 Disclosures

A disclosure communicates company’s information, the disclosure is provided by the company. Rules

and regulation exist to provide all obligated information. Companies should make required information

publically available. The financial disclosure is a well known mandatory disclosure. Also voluntary

disclosures exist, in voluntary disclosures information is provided which is, next to mandatory disclosure,

not obligated to communicate. First, a short description is given of the financial disclosures, followed

with a description of voluntary disclosures. This description gives a background for understanding the

CSR report disclosures.

2.1.1 Financial disclosure

Companies communicate information in different ways, these announcements are called disclosures.

The most common known disclosure is the financial annual report. In these disclosures, information is

provided about past financial performances and the current financial position of the company. In the

financial report the profit and loss account, balance sheet and cash flow statement are included. Also

other important information for users should be incorporated in a financial report. Financial disclosures

provide useful information to investors and other stakeholders, based on the disclosed information

investors and stakeholders make decisions. Financial reports are valuable for investors, this associated in

the studies of Kothari (2001), Louhichi (2008) and Su (2003). In these studies evidence is found that

financial reports affect stock price reactions. The reaction of investors can be observed due to the

changes in stock prices.

15 | P a g e

Specific requirements exist for the financial reporting of listed companies. All listed companies are

required to make the financial report publically available. These listed companies have a big influence on

the society, so the disclosures should be free from errors and fraud. Therefore the financial reports

should be audited by a Certified Public Account (CPA) firm. Providing a financial report is the

responsibility of company’s management. Management is primarily responsible for the information

provided in the report. The financial report should be in conformity with standards and regulations. The

General Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards

(IFRS) are common used standards. For GAAP different country versions exist. The IFRS services a

broader public, this reporting standards is applied in an international setting.

2.1.2 Voluntary disclosure

Management is able to choose, to disclose more information than is required. The non mandatory

disclosed information is called voluntary disclosures. Mandatory disclosed information is imposed by

laws and regulations. But no laws and regulations exist for providing voluntary disclosures. When on a

voluntary base information becomes available, investors are provided with additional information, this

will lead to improved decision making by investors. Also companies can distinguish themselves from

other companies, when providing voluntary information. Different forms of voluntary disclosures exist,

examples are: conference calls, press releases, interviews and sustainability or CSR reports.

2.1.4 Summary disclosures

Companies communicate information to stakeholders by disclosures. In a financial disclosure required

information is provided. For this required information rules and regulations exist. Voluntary disclosure is

a disclosure, that communicates non mandatory information and no rules and regulation exist for these

provisions

16 | P a g e

2.2 Corporate Social Responsibility

The subject of this thesis is to investigate the impact of CSR reporting. Before investigating this impact,

first the definition of CSR and CSR reporting should be clear. In a CSR report the performance of the CSR

strategy is communicated. First the definition of CSR is provided, this is followed with an introduction of

CSR reporting. Besides that CSR reporting is a voluntary disclosure, guidelines exist for providing a

report. The guidelines of CSR reporting are provided in the third part of this paragraph.

2.2.1 Definition of Corporate Social Responsibility

Companies which implement CSR strategy into the organization, put attention to environmental and

social activities. When a company implements CSR strategy into the organization, a switch is made in the

focus of the company. Not only the financial performances are important, but also the environmental

and social performances face attention. These companies are concerned about their negative influences.

Many CSR definitions exist, one of the definitions is coming from the World Business Council for

Sustainable Development (WBCSD). This is a platform developed by 200 companies, out of 30 countries.

The WBCSD deals with business and sustainable development, they help companies exploring a new CSR

strategy in the company. Also sharing knowledge and experiences are important purposes of the

WBCSD. Their definition of CSR is:

“The continuing commitment by business to behave ethically and contribute to economic development

while improving the quality of life of the workforce and their families as well as of the local community

and society at large.”

A stricter explanation of CSR is provided by Naylor (1999) and used by Douglas, Doris and Johnson

(2004). This definition is more in line with WBCSD, where CSR is defined as a continuously commitment.

The stricter definition of Naylor (1999) is:

“The obligation of managers to choose and act in ways that benefit both the interest of the organization

and those of society as a whole.”

CSR is makes use of activities, different activities exist for different companies. For example,

manufacturing companies that use for production natural materials can implement CSR activities. One of

the goals of their CSR strategy can be, lowering the amount of used natural materials by setting

17 | P a g e

maximum levels of use. Minimizing the pollution rate is a well know CSR activity too. The social side

activities of CSR are, for example, related to providing sponsorships to foundations. The Dutch bank

Rabobank provides much sponsorships to sport and cultural organizations.1 Companies have also the

possibility to implement CSR activities which focus more on the intern side of the company. Examples of

intern CSR activities are, stimulating of employees to go by bike to office and serving healthy food in the

canteen. The health of employees is an important factor for companies, healthy employees are better

performers (Biotech Week, 2004).

Above some examples are given of CSR activities, these CSR activities leads to the CSR performances or

outcomes of the CSR strategy. A CSR strategy includes many CSR activities, the CSR activities all together

have the purpose of reaching a final goal. The outcomes or performances of CSR activities are corporate

social performance (CSP). Wood (2010) provides a framework which made the distinction clear between

CSP and CSR. Following the study of Wood (2010) there is claimed that CSP is more focused on the

outcomes and impacts of performances. The CSP is defined by the principles of CSR, the CSR strategy

sets out the expected performances. Wood (2010) implies that, CSP result from CSR and that CSP proves

from social responsiveness. She identified the social responsiveness as a process where environmental

scanning, stakeholder management and public affairs management are incorporated. This all implies

that, CSP is the outcome of the CSR activities.

In the study of Wood (2010) there is made use of CSR, when measuring the corporate social

performances. Before, already was mentioned that Wood (2010) sees CSP as the outcome of CSR. In this

framework CSR is defined on three principles: legitimacy, public responsibility and managerial discretion.

In this study a definition about the legitimacy theory is given: “Businesses that abuse the power society

grants them will lose that power.” A company obtained power, achieved from society. The company

uses this power in their daily production and decision making. If a company harms the environment of

society due to the production or decision making, they misuse their power. The society will judged the

company in a negative way, the company will obtain less power finally. The definition of the public

responsibility is:”Businesses are responsible for outcomes related to their primary and secondary areas

of involvement with society.” This definition implies that, the company is full responsible for the

environmental and social performances. Not only the positive performances are under company’s

responsibility but also the negative performances are under company’s responsibility. The managerial

discretion is defined by Wood (2010) as: “Managers and other employees are moral actors and have a

1 http://www.rabobank.nl/particulieren/servicemenu/sponsoring/sponsorfilosofie/ accesed on 14 March 2011

18 | P a g e

duty to exercise discretion toward socially responsible, ethical outcomes.” This implies managers and

other employees should act in the way the CSR strategy prescribes. This extended framework with the

three included principles, designed by Wood (2010), suggests that CSR is driven by managers and

employees, towards the company’s performances which benefit society. When a company abuses

power from society, the company will be harmed in losing power.

Companies are free to choose whether or not to implement a CSR strategy into the organization. No

mandatory requirements exist for implementing a CSR strategy. CSR is a strategy that provides benefits

not only for the company, but for the society too. When implementing CSR, the company acts in their

own preferences (for example, high financial performances) and also takes the preference of society

into account (for example, reducing the company’s pollution).

2.2.2 Developments in Corporate Social Responsibility

In the previous decades the use of CSR was rising. This is mainly due to the rise in awareness about

environmental and social issues (Quaak, Aalbers and Goedee , 2006 and Kakabadse, Kakabadse and Lee-

Davies, 2006). The focus of companies on environmental and social issues has changed over time. In the

first decades of the twentieth century a little start of CSR was already been made. Companies became

more aware of their social side, attention to housing of employees and health security was growing.

Later on, the government takes the responsibility for this social guidance. The consequences of the

economic growth became visible in the seventies of the last century, big economic growth was harming

the environment too much. There was coming more pressure on the social and environment

involvement of the company. The last decades continues globalization leads to a growing change in the

social and environmental problems, from local perspective to global perspective. Companies now, have

to solve problems on three different dimensions; economic, social and environmental. Nowadays,

companies can solve these problems by the triple P-strategy. (Quaak et al., 2006)

2.2.3 Corporate Social Responsibility reporting

Performances related to CSR can be communicated by several CSR disclosures. One of these CSR

disclosures is the CSR report. In a CSR report the CSR performances of underlying period are

19 | P a g e

summarized. The CSP are communicated in this CSR report. In the study of Dawkins and Stewart (2003)

is prescribed that companies should disclose CSR information. In this study the demand of CSR reporting

was investigated. The demand to provide CSR reporting was represented by 86 percent of the British

public. But what contains the concept of CSR reporting? Different descriptions exist for this concept,

different definitions of CSR reporting are discussed.

In the study of Sutantoputra (2009) companies are assessed on the level of CSR reporting, when

providing a rating of the social performances of the selected companies. The assessment of the CSR

reports is based on the GRI framework. In this study there is made use of the following definition of CSR

reporting:

“The process of providing information designed to discharge social accountability”

In another study of Douglas et al. (2004) the CSR reports of financial institutions from Ireland are

analyzed. In this study is argued that CSR reporting is a way to provide stakeholders information about

social performances of the company. In this study of Doris et al. (2004) corporate social reporting is seen

as a tool for developing a positive image among the stakeholders.

Sutantoputra (2009) notice that CSR performances are also communicated in annual reports instead of a

standalone CSR report. But a rising trend is observed in providing CSR information, a growing rate of CSR

disclosures is disclosed in a standalone CSR report. The CSR reporting behavior is different among

countries. Douglas et al. (2004) argued that these differences are based on the government policies,

cultural differences and stage of the economical development. They claim too, the quality of CSR report

is not related to the volume of disclosed information.

2.2.4 Corporate Social Responsibility reporting guidelines

Since a CSR report is a voluntary disclosure no laws and regulations exist when developing the report.

But when no rules and regulations exist to provide a CSR report, too much freedom occurs when

formatting a report. This can follow in a diversity of high and low quality levels among CSR reports. Low

quality level reports provide less transparent and less reliable information then high quality reports. To

provide high quality CSR reports, a framework for developing CSR reports should be constructed. A

framework with guidelines to establish high quality CSR reports provides CSR reports which achieve a

20 | P a g e

satisfied quality level. Below, descriptions and tools are given about guidelines, provided by the Global

Reporting Initiative (GRI).

The GRI is an important institute for the development of CSR reporting. They provide a framework for

sustainability reporting. This framework is based on stakeholders’ perceptions. Principles and objectives

underline the GRI framework. When managers follow the framework benefits arise for the organization

it selves and the users of the report. The GRI framework is global, the most used framework for social

reports. On their website they refer to their mission:

“To create conditions for the transparent and reliable exchange of sustainability information through the

development and continuous improvement of the GRI Sustainability Reporting Framework.” 2

The provided framework is developed for every company independent of size and sector characteristics

of companies. The principles guarantee qualified provided information. The principles include

standardizations of the information disclosures. 3Different reporting levels are specified by the GRI

framework. The application levels are A, B and C, these levels measures the extent of coverage of the

GRI framework. This level framework provides benefits for report users and makers. This level

framework provides incentives for report makers, to increase their reporting skills.4

Following the objectives of GRI, the CSR report should measure and publish the company’s

responsibilities to stakeholders about sustainable growing performance. These reports can be used for

different purposes:

Comparing and assessing the sustainable performance of legislation, official norms, codes,

performance standardization and voluntary initiatives.

Assessing how the company is influenced by and influencing the expectations of sustainable

development.

Comparing different performance of a company and the difference between companies on a

long turn.

2 http://www.globalreporting.org/AboutGRI/ accessed on 15 March 20113 Richtlijnen voor duurzaamheidsverslaggeving, 2000-2006 GRI, version 3.04 http://www.globalreporting.org/NR/rdonlyres/D2BC0DF8-FF2C-4BAB-B2B4-27DA868C2A5F/5683/G3_Guidelines_English.pdf accessed on 15 March 2011

21 | P a g e

2.2.5 Summary Corporate Social Responsibility

Several definitions exist CSR, the CSR definitions describe that CSR covers responsibility of

environmental and social side, which benefits the company and society. When a CSR strategy is

implemented in the company, CSR activities support the goal of CSR strategy. The outcome of CSR is

CSP.

When the CSR strategy is implemented in the organization, managers have the opportunity to

communicate the CSR information in a CSR report. When the CSR information is disclosed, stakeholders

are provided with more information.

No laws and regulation exist to prove a CSR report. But the GRI provides guidelines for developing a

report. This framework provides benefits for users and makers of CSR report.

2.3 Positive Accounting Theory

The positive accounting theory is important in disclosing voluntary information. The positive accounting

theory is useful to specify the reasons of disclosing a CSR report. The positive accounting theory includes

theories which explains and predicts circumstances. As argued by Deegan and Unerman (2006) the

positive accounting theory focuses on the relationship between stakeholders and the company. Deegan

et al. (2006) explains that positive accounting theory is used to assists this relationship. The agency

problem, information asymmetry, legitimacy theory and stakeholder theory are explained in this

paragraph. First, the information asymmetry and the agency problem are introduced. The information

asymmetry is deducted from the agency problem. The legitimacy theory and stakeholder theory are

explained as well. The incentives of CSR reporting which are based on the positive accounting theories

are more discussed in next chapter.

2.3.1 Agency theory

The agency problem arises among stakeholders and management. This problem is designed by Jensen

and Meckling (1976). The agency problem is driven by self interest. Stakeholders provide resources to

the company, for example, shareholders or investors provide financial resources and the environment

provide environmental resources to the company (fresh air and natural production materials). The

resources provide by environment are represented by environmental foundations and government

22 | P a g e

Management (insiders) make decisions based on their self interest. But in the decisions making,

concerns of stakeholders (outsiders) are involved. Because stakeholders provide resources to the

company. Stakeholders are defined by Freeman and Reed (1983) as:

“Any identifiable group or individual who can affect the achievement of an organization’s objectives, or is

affected by the achievement of an organization’s objectives.”

Different stakeholder groups have different concerns of the company. Environmental foundations have

environmental concerns. For example, Environmental foundations do not appreciate management

decisions to open a new polluting factory near a natural area. The environmental foundation is affected

by the decision making, because it looks after the environment. But the environmental foundation has

no opportunity to decide whether or not building the new factory. Management benefits from the new

factory, if the new factory results in higher profits, this higher profits drives management to decide to

build the new factory. Managers make decision based on their self interested incentives. Management

and stakeholders differs in their incentives. In the decision of new projects, resources of stakeholders

are involved. But this stakeholders does not always play an active role in decision making, stakeholders

are not able to make decisions on their provided resources (employees are not able to make decision

which insure their work). Jensen et al. (1976) argue that when managers and stakeholders do not own

the same incentives and when stakeholders are not able to monitor the management’s behavior, the

agency problem occurs. (Healy and Palepu, 2000)

The agency problem arises due to different incentives among management and stakeholders. A lot of

different stakeholders exist, with different concerns. Investors benefit from high company returns,

although environmental foundations are more concerned about the negative damage of the company

and labor unions wants to retain the amount of work as before. All this different concerns leads to

different incentives. But outcomes exist to solve issues, about conflicting incentives. Healy and Palepu

(2000) offer ways to decrease the agency problem. The manners that Healy et al. (2000) are described

are: contracting, disclosing, corporate governance, information intermediaries and corporate control

contest. Requirements can be made about issues. Healy et al. (2000) argue that compensation

requirements of managements and rights and obligations of different stakeholders decrease the agency

problem. Contracts should be made, to describe the requirements. For proving if management honors

the requirements in the contract, disclosures are important. Healy et al. (2000) argue if information is

disclosed, stakeholders have the opportunity to monitor if management meets the contractual

agreements. Also the board of directors can influence the agency problem, which is structured in the

23 | P a g e

corporate governance of the company. Following Healy et al. (2000), this board has the aim to control

management, they make sure if management acts properly. Information intermediaries as rating

agencies and financial analysts will probably detect misuse of resources and funds which are provided by

investors. When detection by rating agency or financial analyst occurs, the reputation of management

will be harmed and the market values the company lower. Healy et al. (2000) investigate that the threat

of market undervaluation reduces the incentive of management to make decisions in favor of their self.

Finally the threat of taking over company’s stocks by competitors reduces the agency problem between

investors and managers. If investors are not satisfied, they have the opportunity to sell stocks to

competitors. This threat is called the corporate control contest. (Healy et al., 2000)

Healy et al. (2000) argue that whether contracting, disclosure, corporate governance, information

intermediaries and corporate control contest eliminate agency problem is questionable. Economical and

institutional factors are the reason for the questionable effectiveness. These economical and

institutional factors are, for example, the ability to develop requirements in contracts. Also Healy et al.

(2000) argue that it is possible that the board of directors can own the same incentives as management.

The writers also state that when the corporate control market is social and friendly, competitors are less

motivated to take over the stocks. These economical and institutional factors have influences on the

effectiveness of the solutions to solve the agency problem. Economical and institutional factors are

continuously changing, so solutions for agency problems should be continuously be adjusted.

As Healy et al. (2000) argue that the provided solutions of the agency problem are questionable, this

implies not, that the provided solutions of the agency problem are not useful. At least the solutions

separate will face a too less impact on the agency problem. But when taken the solutions together, the

effect will be larger. Voluntary disclosures and also CSR reporting are one of the solutions and can be

seen as a tool for reducing the agency problem when also the other solutions are taken into

considerations. The problem exists due to the fact that managers and investors have different incentives

with the company. Also both parties act in their own interest. When disclosing information,

management behavior can be monitored, for example CSR report disclosure monitored management on

their CSR performances. Disclosures provide more openness in the behavior of management. This

implies a way to monitor acts and decisions made by management. Now it’s possible for stakeholders to

control and assess management behavior. When stakeholders disapprove management behavior, it will

probably result in an undervaluation of the company. The undervaluation is harming the company,

therefore management tries to make a good reputation, voluntary disclosures can be used as a tool for

24 | P a g e

achieving this reputation. This result of voluntary disclosure, the possibility that investors judge

management has the result of more openness.

2.3.2 Information asymmetry

The explanation of information asymmetry is based on the difference in information hold by

stakeholders (outsiders) and management (insiders) of the company. Management makes decisions in

favor of continuing the company. For making accurate decisions, management is completely informed.

Although stakeholders do not own all information. The company is dependent on stakeholders.

Stakeholders provide resources to the company.

Before, the agency problem was explained. The information asymmetry can be seen as a result of the

agency problem. The agency problem is driven by self interest. Management and stakeholders make

decisions based on this self interest. Providing information in a disclosure is one of these decisions.

Provided Information is used in decision making, when management influences the amount of provide

information they have the possibility to influence stakeholders decisions. Management sometimes

benefits from disclosing less information. When management provides less information, the information

asymmetry is high.

The information asymmetry shows the openness of the company. When a company is full open,

management and stakeholders owns the same amount of information. But in practice a distinction in

information hold by management and stakeholders exist. This difference in holding information is called

the information asymmetry. Healy et al. (2000) argue that in the information asymmetry risk is involved.

Stakeholders make decisions based on the provided information. When relevant information is not

provided to stakeholders, the decision of stakeholders can be different. Stakeholders want receive as

much information as possible, to make optimal decisions. When management provides all information

the competition status of the company can be affected. (Healy et al., 2000)

Argued by Akerlof (1970) managers bias the provided information in a positive way. When providing

positive information, the company will attract more investors. When management judge less well and

bad information also in a positive way, more investors are attracted. Akerlof (1970) described that this

result in a situation where investors are not able to make a distinction between good and bad

information. Information announcements about good investments are undervalued and the

announcements of bad investments are overvalued. This problem is called the Lemons problem. Akerlof

25 | P a g e

(1970) argue the lemon problem will finally leads to a breakdown of the capital market. The lemon

problem arises from the information asymmetry. If no information asymmetry exists, outsiders own all

detailed information and are able to value the information content. If a situation of no information

asymmetry occurs, investments are valued on unbiased information.

The information asymmetry problem and lemon problem can be reduced in different manners. Healy et

al. (2000) explains three different tools for reducing the information asymmetry and lemon problem.

Information intermediaries, optimal contracts and regulation result in a lower information asymmetry.

Ratings agencies and financial analysts, which are information intermediaries, are searching for

information privately owned by management. If information intermediaries make their findings

publically available, the distinction between information hold by managers and outsiders is reduced.

Optimal contracts are also solutions for reducing the information asymmetry. Optimal contracts

incorporate management requirements to disclose optimally all private information. When managers

should announce all private information, more information becomes available for investors. This leads

to a reduction in the information asymmetry. Besides contracts, regulations that require management

to disclose all private information, results in a reduction of the information asymmetry. When

stakeholders own more information, they are more able to measure the difference between good and

bad information. The increase in information hold by stakeholders, results in a reduction of the lemon

problem. (Healy et al., 2000)

Voluntary disclosures and CSR reporting can use as tool to reduce the information asymmetry.

Management can decide to provide voluntary disclosures, the voluntary disclosures will decrease the

distinction in information hold between insiders and outsiders. Voluntary disclosures are announced by

management it selves. No rules and regulation exist that requires management to disclose the provided

information. This negative relation between information asymmetry and voluntary disclosures is

observed in the study of Akhtaruddin and Haron (2010). The information asymmetry was measured with

the agency costs and found evidence that high agency costs are associated with low level of voluntary

disclosures. This result implies that voluntary disclosures reduce the information asymmetry.

2.3.3 Legitimacy theory

The legitimacy theory belongs to the positive accounting theory, the legitimacy theory explains why

management decides to take action in favor of society. For understanding the legitimacy theory it is

26 | P a g e

important to know, that a company operates in the society. And that the company is judged by the

society on their performances. A detailed explanation of the legitimacy theory is provided by Deegan

and Unerman (2006):

“Legitimacy theory relies upon the notion that there is a ‘social contract’ between the organization in

question and the society in which it operates.”

Deegan and Unerman (2006) explained the social contract concept by:

“… a concept is used to represent the multitude of implicit and explicit expectations that society has

about how the organization should conducts its operations. “

This explanation implies that, the legitimacy theory is driven by the public expectation of companies

about their operations. This expectation is not only based on the production process, but also on the

performances of corporate governance and other processes which assist the operations of the company.

Companies obtain legitimacy from the public, if they are performing in accordance of public. In the study

of Lightstone and Driscoll (2008), where companies behavior is tested to obtain legitimacy. In this study

Canadian companies were investigated on ethics and legitimacy. They found that companies are using

ethical language to inform stakeholders. When bad news was communicated also positive information

was provided. The authors suggest that this positive information misleads the stakeholders about the

bad news. When stakeholders are provided with bad news and positive information, stakeholders make

more positively expectations about the company than when only bad news is communicated. This is in

conformity that companies will achieve legitimacy from the public. When only the single bad

information was announced, the public will value the company at a lower level. But when also positive

news is announced, the valuation of the public improves. From the disclosure of this positive news, the

company is judged legitimate by the public.

Lui and Taylor (2008) found evidence that management achieves legitimacy from the society. In their

research they investigate the voluntary disclosures of executives’ remuneration in Australia between

2003 and 2004. Starting in 2002, scandals about corporate governance were detected. This scandals

result in a rising demand of stakeholders to provide more information about executives’ remuneration.

In the study of Lui et al. (2008) was investigated that management legitimated the company, by

providing more detailed information about executives’ remuneration. These details were voluntary

provided in the annual report. This study implies that companies are driven by the expectations of the

27 | P a g e

public to legitimate their operations. After disclosing detailed information about executives’

remuneration, the company achieves from the society the ‘license’ to operate.

Cho and Patten (2007) found evidence that environmental disclosures are used as a tool for legitimacy.

This study is based on companies which are separated out in different groups, the environmental

sensitive and non-environmental sensitive companies and good and bad environmental performers. In

this study is concludes that companies which are bad environmental performers are disclosing more

environmental information. The findings that environmental disclosures is a tool for legitimacy and that

bad environmental performers provide a higher level of environmental information is consistent with

Dowling and Pfeffer (1975). In the study of Dowling et al. (1975) three tools are meant to obtain

legitimacy, these tools are:

“The organization can adapt its output, goals and methods of operation to conform to prevailing

definitions of legitimacy.”

“The organization can attempt, through communication, to alter the definition of social

legitimacy so that it conforms to the organization’s present practices, output, and values.”

“The organization can attempt, again through communication, to become identified with

symbols, values, or institutions which have a strong base of social legitimacy.”

This implies that the findings of Cho et al. (2007) are in consistent with the second tool of Dowling et al.

(1975). Poor environmental performers are using a higher amount of environmental disclosures. The

poor environmental performance companies need more communication to obtain a legitimacy level and

therefore these companies communicate more environmental related information.

This described studies of Lightstone et al. (2008), Lui et al. (2008), Cho and Patten (2007) and Dowling et

al. (1975) provide the incentives to disclose voluntary information. Because public provide legitimacy to

the company. The company should act in a way that they deserve the legitimacy. Voluntary disclosures

are a way to become legitimate. Argued by Dowling et al. (1975), through communicating, the company

can define the taken legitimacy operations. The public observes the information from the voluntary

disclosure and provides legitimacy.

28 | P a g e

2.3.4 Stakeholder theory

The stakeholder theory has some similarities with the legitimacy theory. For understanding both

theories there should be taken into account that the company operates in the entire society. The

company has to deal with different stakeholder powers concerns. Argued by Deegan and Unerman

(2006), the stakeholder theory can be distinguished into the ethical branch and the managerial branch.

From an ethical point of view, all stakeholders should be treated equal. All stakeholders have the same

rights and no difference in stakeholder power should exist. The rights of the stakeholders should not be

violated. This result that all stakeholders should be informed about the impact of the company on their

individual concerns. (Deegan et al., 2006)

The managerial branch of stakeholder theory emphasizes different stakeholder groups. The different

groups should be managed in different ways, this suggest that not all stakeholders should be treated

equally. Demands of powerful stakeholders are rather meet than less powerful stakeholders. This is

conformity with the study of Ullman (1985) which argues that stakeholders’ power to influence the

company is dependent on the stakeholders’ possibility to control over required resources of the

company. This implies that stakeholders which have much power over the company also have more

influences on the company.

In a recent study of Huang et al. (2010) the drivers for environmental disclosures are investigated in

Taiwan. There is made a distinction into internal and external stakeholders. There is found evidence

that external stakeholders have a larger power in environmental disclosures. Internal stakeholders

provide additional pressure to the environmental disclosure. Huang and Kung (2010) argue that larger

companies and companies that in the past harmed the environment observe more pressure from

government to disclose environmental information. They suggest companies that harmed the

environment in the past, should improve their legitimacy. In this study is also claimed that larger

companies facing more impact of stakeholders, on environmental disclosures. The final conclusion of

this study is that, stakeholders put an important pressure on management to disclose environmental

related information.

2.3.5 Summary Voluntary Disclosures and Positive Accounting Theory

In this paragraph the positive accounting theory is explained. The positive accounting theory explains

and predicts company’s behavior. The agency problem explains that management and stakeholders

behave out of their self interest incentives. This problem predicts that managers and stakeholders make

29 | P a g e

decisions in favor of their self interest. A voluntary disclosure is a tool to reduce the agency problem. In

the disclosed information, the behavior of management is visible. The information asymmetry is also

reduced by voluntary disclosures. The level of information asymmetry reflects the gap between

information of the company hold by managers and stakeholders. After a disclosure, more information

becomes available to stakeholders, this reduces the information asymmetry.

The legitimacy theory explains that company made decisions to favor society. Companies obtain power

from society, when they abuse this they will lose power. So this implies the fact that companies made

decision to legitimate each self. CSR disclosure is used to achieve legitimacy, a CSR report provides more

openness in the CSR activities of the company. The society will judge the company in a positive way,

when CSR information is provided.

At least the stakeholder theory explains that company is influenced by some stakeholders. Two types of

branch of the stakeholder theory exist. The ethical branch explains that all stakeholders should be

treated equal independent of their power. But the managerial branch explains that differences exist in

the power of stakeholders to influence the company. But the main message of the stakeholder theory is

that different stakeholder groups have different demands. The company pays attention to all different

demands of stakeholders. Every company has stakeholders which are interested in the CSR

performances. The demand of these stakeholders is met when, a CSR report is disclosed with

information about CSR performances.

Chapter 3 Literature Review

Before a CSR report is provided, managers first choose to implement a CSR strategy in the company.

When the strategy is operative, the CSR performances and other relevant CSR information can be

summarized in a CSR report. By the provided CSR report, stakeholders get an inside view of the related

30 | P a g e

CSR activities and results. But why do managers choose to implement a CSR strategy and to disclose a

CSR report? The reasons of providing information about CSR activities and results are important to

know. Also the impact of CSR reporting is interesting. Using prior research, the incentives and impacts of

CSR reporting is discussed in this chapter.

In the first paragraph the incentives of management to implement CSR in the organization are given. The

remainder of the chapter provides an overview of existing literature, related to the impact of CSR

disclosures. First the impact on the forecast error is discussed. Afterwards, literature related to the

impact on the public sentiment is described. Finally, the influences on the financial performances are

discussed.

3.1 Incentives of Corporate Social Responsibility strategy and reporting

A CSR strategy leads to another focus of the company, the triple P-strategy has an important role in

here. CSR can be a way for implementing the triple P-strategy into the organization. Stakeholders are

important parties for the implementation of the CSR strategy, this is discussed in the part about the

incentives of the CSR strategy implementation. The CSR reporting incentives are also discussed in this

part. The final part of this paragraph provides a description of the implementation of the CSR strategy

and the CSR report.

3.1.1 Corporate Social Responsibility strategy and reporting incentives

The triple P-strategy is a strategy performed by commercial companies, to have more focus on the social

and environmental sides of the firm. This triple-P strategy is an aspect of CSR. The triple-P is coming

from, People, Planet, Profit. Quaak et al. (2006) argued that this triple-P strategy is value creating by the

company, not only value creating in terms of profit but value creating for society and environment too.

This value creating comes from the possibility that, a cost reduction can occur when focusing on the

society and the environment, but this cost reduction is not necessary the case. Conceivable cost

reduction is decreases in potential litigation and pollution costs. More practical cost reduction is savings

due to efficient paper use. The view of the company how finally the triple P-strategy should be

implemented in the organization is dependent on stakeholders. All stakeholders have different concerns

with the company (Quaak et al., 2006).

31 | P a g e

For providing more transparency, companies should answer the demand of CSR related information

from stakeholders. Dawkins et al. (2003) suggest that stakeholders are asking for more openness

regarding CSR related performances. The company is able to inform stakeholders on different ways. The

CSR report is one way, to make CSR information available for public. The CSR report improves the

transparency of the company (Quaak et al., 2006). The CSR report is part of the CSR strategy.

Determined on the CSR strategy, management decides whether or not to provide CSR information in a

CSR report.

As before already was mentioned, stakeholders put pressure on the company. The CSR strategy (and

thus the CSR reporting) is influenced by stakeholders. But not only stakeholders have an impact on the

CSR strategy. In the study of Quaak et al. (2006) different influences on CSR strategy are summarized.

There is made a distinction between internal and external influences. Internal influences are coming

from inside the company. Internal influences are further divided into actors and factors. Actors are

person or people which are organized in groups within the company. This persons or groups have the

power to determine and influence the CSR strategy. The internal factors are not person or organized

person, but are elements within the company and have an effect on the CSR strategy. Outside influences

are only coming from people or organized people, no factors from outside influences the CSR strategy.

These people can make use of their power to influence managements’ decisions about CSR strategy.

Since CSR reporting is part of the CSR strategy, internal and external actors and internal factors are

influencing CSR reporting. Below in table 1 the internal and external influences are stated.

Table 1: Internal and external influences on CSR strategy

Internal External

Actors InvestorsShareholders

32 | P a g e

Consumers / CitizensCustomer

Management SuppliersEmployees Non- government Organizations

NeighborhoodMediaGovernmentCompetition

FactorsCostsComplexityKnowledge

The level of influences of actors and factors can be different for each company, the level of power of the

actors and factors are different. Companies which operate in rural areas are facing a lower level of

neighborhood power, compared to companies in urban areas. Expected from the stakeholder theory,

companies benefit if they satisfy CSR reporting demands of stakeholders. Stakeholders have the

opportunity to misuse their power, stakeholders are able to put pressure on their demands.

Companies are part of the society, the society and companies are affecting each other. Decision made

by the society has an influence on the company and also decision made by companies influence the

society. This implies society and companies are dependent of each other. The implemented CSR strategy

influences the society as well. Porter and Kramer (2006) called that society and companies should make

decisions based on the shared value. If they taken the shared value into account, the decision adds value

for both parties. Porter et al. (2006) separate out the two types of linkages: inside-out linkages and the

outside-in linkage. The inside-out linkage represent the influence of the company on the society, an

example is the pollution effects of the producing. The outside-in linkage represents the effect of the

society on the company. An example of the outside-in linkage is incentives provided by government to

invest in social projects. For developing a CSR strategy into the company, the company should

implement the inside-out and outside-in linkages in the CSR strategy. Porter et al. (2006) claim that the

implementation of inside-out and outside-in linkages supports the shared value. When allow for the

dependences of company and society, the company is able to design a CSR strategy with benefits for

both parties.

33 | P a g e

When the CSR strategy is implemented in the company, the company can decide to provide a CSR

report. In the CSR report the CSR performances are showed, also future CSR related information can be

incorporated in the CSR report. Since companies are free to choose for communicating CSR information,

the CSR report is a voluntary disclosure. The incentives based on agency theory and information

asymmetry, legitimacy theory and stakeholder theory are capable to explain the incentives of a CSR

report. In paragraph 2.3 the agency theory, information asymmetry, legitimacy theory and stakeholder

theory are explained, in this explanation is already described that these theories are in conformity with

voluntary disclosures.

Healy and Palepu (2001) described incentives to provide voluntary disclosures, based on the positive

accounting theory. These incentives are also applicable for CSR reporting. The capital market incentive

can be linked to a CSR report. The capital market incentive explains that due to the disclosure the

information asymmetry is reduced and this results in a reduction of costs. Managers which decide to

disclose a CSR report, can base this decision on the capital market incentive. For example, in the

provided CSR performances, information is given about the investments in sustainable production. This

reduces the information gap between stakeholders and management and reduces the agency costs. The

cost of equity decreases, investors are more able to expect future pollution and litigation costs.

If a threat undervaluation of the company occurs, managers put more focus on the CSR performances.

The focus on CSR performances reduces the risk of undervaluation. It is imaginable that a company has

bad financial performances due to an economical downturn, but has invested in social education

projects. Social projects are beneficial for the society as a whole, stakeholders value these projects

positive. When company puts attention on the CSR report and if good projects are performed, the

magnitude of the undervaluation is reduced. This is in conformity with the corporate control incentive of

voluntary disclosures of Healy et al. (2000). The legitimacy theory is the driver of this corporate control

incentive. The company wants to receive legitimacy from the society when communicating CSR

performances. The corporate control contest is observed in the findings of Lightstone et al. (2008) they

found that companies communicate bad information together with positive information.

Managers are affected by the performances of the stock prices. CSR performances are quite well judged

by (potential) investors, there is less risk involved when investing in CSR reporting companies, then in

comparison with not CSR reporting companies. The litigation costs are reduced, the company faces a

more open view to investors, due to the reduction in information asymmetry. There is a better view of

the possibility if a third party will litigate the company, when the company harms the society or

34 | P a g e

environment. This decrease of litigation costs implies an increase in the future cashflows, which finally

results in an increase of the stock prices. This described stock compensation incentive of Healy et al.

(2001) is also applicable for the CSR reporting incentives. Similar to the control contest incentive, the

stock compensation is based on the legitimacy theory. The stock compensation incentive is not based on

the stakeholder theory because, the demand of providing CSR information comes not from the demand

of stakeholders. But the stock compensation incentive for CSR reporting is also a result of the agency

problem and the information asymmetry.

Also the standalone threat that stakeholders litigate managers is an incentive for the decision of

providing a CSR report. When companies announce more information about the influences on the

environment, stakeholders are more informed about the impact of the company. These CSR

performances can be positive or negative judged by the stakeholder (also dependent on the stakeholder

interest). So managers should be very careful in the decision of providing certain information in a CSR

report, or even providing a CSR report. This is in conformity with the litigation cost incentive of Healy et

al. (2000). This incentive is based on the legitimacy and stakeholder theory. And also the agency

problem is taken into account when CSR reporting decisions are based on the litigation cost incentive.

The management talent signaling incentive of Healy et al. (2000) argues that managers are better judged

if they provided more information. When voluntary CSR performances are announced, it is expectable

that managers are better judged due to the more provided information. This incentive is based on the

incentive that the manager wants to achieve a license to operate. Also when managers disclose a CSR

report based on signaling. They take the agency theory into consideration, the management makes the

CSR reporting decision based on their own interest.

The sixth incentive of Healy et al. (2000), implies a reduction in provided information, this is also

applicable to CSR reporting. For example, a company implements a specific project to improve the

health of employees. The designed health project is unique and no other companies have a comparable

project. This project influences in the first place the quality of work provided by the employees. But also

talented employees are attracted to the company due to the good second working conditions. For the

company its beneficial to do not communicate specific project information about the content, to

stakeholders, it can decrease the competitive position of the company. This proprietary cost incentive

should also be taken into account when managers decide to provide CSR information. The stakeholder

theory is relevant for this proprietary cost incentive, because the decision whether or not to disclose

certain information, is based on the power of stakeholder groups. And also the agency problem is

35 | P a g e

important in this incentive, the self interest of managers to keep the information inside the company

should be noticed.

CSR reporting is a voluntary disclosure, companies are not obligated to disclose CSR information. The

above described incentives argue a disclosure of a CSR report. But when incentives exist to provide a

CSR report, the question rises, why CSR reporting is not mandatory. In the study of Rodriquez and

LeMaster (2007) this question is answered. Rodriguez et al. (2007) claimed that CSR reporting should

stay voluntary disclosures. The Security and Exchange Commission (SEC) should not require companies

to disclose CSR reports, CSR reporting increases creditability and transparency (Rodriguez et al., 2007).

When CSR disclosures become required, few gains are reached but this outweighed not the cost of the

requirement.

3.1.2 Implementing Corporate Social Responsibility strategy and report

The development of a CSR strategy is very important, when the strategy is well developed and

implemented, the company achieves benefits. Porter et al. (2006) argue that a chosen CSR strategy

incorporates environmental, social and economical aspects. The environmental, social and economical

aspects are comparable with triple-P strategy. With the chosen strategy the company is able to

differentiate from competitors. An example where the strategy differentiation results in many benefits is

provided by Porter et al. (2006) this is the strategy of the Prius produced by Toyota. Toyota designed a

strategy for the hybrid Prius and these results in a competitive advantage and in well environmental

performance.

To implement a CSR strategy, the company should go through different phases. The whole company is

effected by the CSR strategy, therefore the company should take different phases into account when

implementation a CSR strategy. These different phases are developed by Kabadse et al. (2006). The first

phase is the decision phase, in this phase the knowledge about CSR is important and different

stakeholders concerns. The outcomes of the decision phase are the designed CSR strategy goals. When

the decision for implementing a CSR strategy is completed, the adoption phase will follow. CSR is a

structure that should be implemented in the whole organization. This implies the aim of the adoption

phase, all employees should have the same incentives for the CSR strategy. Kakabadse et al. (2006)

argues that, to make the adoption phase successful there should be a persuasive sub stage included. The

possibility exist, that two or more contrasting incentives are conflicting with each other. To handle these

36 | P a g e

conflicts, paradoxes and conflicting priorities should be prepared. Also it is important that through the

company’s activities the CSR message is consistent implemented. Monitoring has the aim to justify if the

CSR message is consistent implemented. This monitoring will give accountability to the CSR

performance. The third phase of implementing CSR strategy in the company is the commitment phase.

Following Kakabadse et al. (2006), all employees should have enough discipline and passion for results

to follow the CSR from initiative to application. This phase suggest there is a will to act. This last phase

has the aim to continuing the CSR strategy in the company. Below in table 2, the different stages are

presented.

Table 2: Different phases that lead to the CSR strategy (Kakabadse et al. 2006)

3.1.5 Summary incentives Corporate Social Responsibility strategy and report

Outside and inside factors and actors have an influence on the implementation of CSR into the

organization. The power of stakeholder influences the impact. The capital market, corporate control,

stock compensation, litigation cost, managers talent signaling and proprietary cost incentive which are

37 | P a g e

CSR Decision Phase

CSR Adoption Phase

CSR Commitment Phase

CSR Strategy

based on the general voluntary disclosures, are useful to explain CSR report incentives. The incentives to

provide a CSR report are based on the agency theory, legitimacy theory and the stakeholder theory.

The decision, adoption and commitment phase are important phases for implementing CSR. The

decision and adoption phase influence the implementation of CSR. The commitment phase influences

the going concern of CSR.

3.2 Impacts of Corporate Social Responsibility Report

Companies implement CSR because benefits are expectable from the CSR strategy. This benefits or

incentives of CSR are described in previous paragraph. When CSR performances are disclosed, a reaction

from stakeholders is expectable. Stakeholders’ value providing of additional information. In this

paragraph the impacts of CSR reporting are discussed, based on existing literature. The impacts on the

forecast accuracy are first discussed. The public sentiment or the reputation will be influenced too, this

is described in the second subparagraph. At the end of this paragraph the financial impacts are

discussed. In the summary a table is provided, which summarize the results of impacts from the used

literature.

3.2.1Forecast accuracy

When CSR information becomes available, stakeholders are provided with more information (Dhaliwal,

Radhakrishnan, Tsang and Yang 2010, A). This additional information produces different effects. The

forecast accuracy is one of the variables that are affected by CSR disclosures. First a describing will

follow about expectations of the impact on the forecast accuracy. Thereafter studies are described

which provide evidence on the impact of the forecast accuracy.

CSR disclosures which are provided by management include relevant information for stakeholders. This

additional information adds value to the stakeholders based on the information asymmetry and the

agency problem (Healy et al., 2010). The information asymmetry will be reduced after disclosing CSR

performances. The distinction in information hold by management and stakeholders decreases. The

increase in level of information hold by stakeholders results in a reduction of information asymmetry.

38 | P a g e

CSR reporting is provided to all stakeholders, also analysts achieve this CSR information. In CSR reports,

relevant information is stored, which influences future financial performances. Analysts make forecast

based on observed information. When more information is disclosed, analysts achieve more

information, this result in more accurate forecasts. Due to the more provided information, analysts are

able to make fewer errors in the predictions. Therefore there can be expect the forecast error

decreases. (Dhaliwal et al. 2010, A)

CSR information is not directly related to financial performances of the company, but although it is

valuable information for investors and other stakeholders. CSR information is environmentally and

socially related and does not provide direct information about financial performances. The provided

information gives a view in the contribution of the company activities on the society and environment.

The provided information is useful to make expectations about future financial performances. The CSR

report provides information about future costs (pollution and litigation). Analysts are able after the

disclosure of the CSR report, to analyze the company in a more certain way. When less risk is involved in

an analyze, more accurate forecasts results. (Dhaliwal et al, 2010, A)

The more accurate forecasts will influence the society. Almost all society behavior faces partly influences

of forecasts. Management and citizens are making decisions based on expectations. Forecasts are

expectations about future financial performances of a company. Many issues are dependent on

expected financial performances. A practical examples is, the extension of company (social) activities,

this affects working employees and potential employees.

In the study of Dhaliwal (2010, A) the relation between CSR disclosures and analyst forecast accuracy is

studied. Evidence is found that disclosing a CSR report leads to a significant lower level of analyst

forecast error. This means, forecasts are of better quality (more accurate) when a CSR report is

disclosed. When a company provides CSR performances, more company’s information becomes

available. Analyst inserts this information in the forecasts, which results in more accuracy of the

forecasts.

This positive relation observed in the study of Dhaliwal et al. (2010, A) between CSR reporting and

forecast accuracy is stronger for countries with a higher level of stakeholder orientation. In countries

with a high level of stakeholder orientation, companies’ social performances are important. In countries

with a high level of stakeholder orientation, fewer errors are made in the forecasts. The evidence in the

study of Dhaliwal et al. (2010, A) is found by analyzing CSR reports and forecast accuracy data, out of 24

39 | P a g e

countries. The result that circumstances of countries influencing the impact of a CSR report is also

observed in other studies. Williams and Aguilera (2008) argue that differences exist in importance of

social performances of companies. This importance of social issues is related to forcing norms. Countries

which put more attention to stakeholders’ issues, are more dealing with stakeholder influences on

decision making. Companies which operate in countries with lower levels of natural resources are more

concerned with the impacts of using these resources. This scarcity of natural resources will result in

more stakeholder orientation.

In the study of Dhaliwal et al. (2010, A) evidence is found that the relationship between CSR disclosing

and forecast accuracy is stronger for companies with less transparency. This implies if companies with a

low level of transparency, which provide CSR information face a bigger impact on the forecast accuracy.

These lower level companies have a bigger positive change in forecast accuracy compared with

companies which are more transparent. Obviously companies which are already open (more

transparency), will achieve less additional transparency compared to less open companies. Dhaliwal et

al. (2010, A) argued that due to providing CSR information, analysts made fewer errors in their forecast,

this is the result of a more transparent view. Investors and other stakeholders benefits from this

transparent view.

The increased transparency due to providing a CSR report, is observed in the study of Dhaliwal et al.

(2010, A) but also in the study of Lang and Lundholm (1996). The study of Lang et al. (1996) is based on

older data out of 1980. The older study also includes financial disclosures. They argue that ratings made

by analysts, based on financial and non financial disclosures, are positively related to forecast accuracy.

They found evidence that companies which have more informative disclosure policies (so disclosing

more information), are followed by more analysts, this analysts providing more accurate earnings

forecast. The accurate earnings forecast are observed from less distribution among individual forecasts

and less volatility in the forecasts. The level of information in disclosures is determined by Financial

Analyst Federation (FAF) ratings. These ratings are based on annual and quarterly published information,

other published information and investors’ relations. The level of followed analysts is measured by the

actual amount of followed analysts. The error in forecasts is measured by the difference in actual

earnings per share and the median of forecasts divided by the price per share. Hope (2003) studied the

influence of disclosures on forecast accuracy. Positive evidence on this relationship was found, based on

a sample out of 22 countries. To measure the information contained in an annual report, the CIFAR

disclosure score is used. This CIFAR score incorporates 85 annual reports variables. The forecast error is

40 | P a g e

based on the difference between actual earnings per share and forecasted earnings per share, divided

by the stock price at the beginning of the fiscal year.

The described studies of Lang et al. (1996) and Hope (2003) takes the financial disclosures also into

consideration when measuring the impact on the forecast error. But the study of Dhaliwal et al. (2010,

A) focus on the voluntary CSR disclosures and the forecast accuracy effect.

3.2.2 Public sentiment

Stakeholders put pressure to implement more social activities into the organization. This implies the

support of stakeholder for a CSR strategy (Quaak et al., 2006). If a company implements the

stakeholders demand in the organization, stakeholders are satisfied. Stakeholders’ satisfaction has an

impact on company’s sales, which is dependent on stakeholder power. (Chen, 2009) In the study of Chen

multi stakeholder satisfaction data is used for proving the positive relation. Stakeholder satisfaction

influences the future revenues. The influences of stakeholders on the future revenues are dependent on

stakeholder power. This pressure of stakeholders to provide a CSR report is in conformity with the

legitimacy theory and the stakeholder theory. In this subparagraph the effect of CSR on the satisfied

stakeholders or on the public sentiment is discussed. The effect on the satisfied stakeholders has also an

impact on financials, this will be discussed in next part.

Not only the fact that stakeholders are asking for a CSR strategy (stakeholder theory), have influences on

the public sentiment. But also the reduction in information asymmetry and agency problem is a result

too and influences the public sentiment. As already been mentioned in describing the impact of forecast

accuracy, CSR disclosure results in a reduction of information asymmetry. Stakeholders are satisfied with

this reduction, they hold more company information, after the disclosure. This results in more certainty

about future performances of the company. Also the agency problem is reduced after a CSR disclosure.

Due to the provided information stakeholders are able to monitor management. Now stakeholders have

the possibility to control management on the performed activities. This more transparent view and way

to monitor management improve public sentiment. This improved sentiment is also reflected in the

legitimacy theory, companies wants to achieve a ‘license’ to operate. With a CSR report this ‘license’ can

be obtained.

In the study of Clarkson et al. (2010) different relationship were tested. One of tested relationship was

between stakeholder perception and environmental voluntary disclosures. In this study the economical

41 | P a g e

impact of environmental disclosures was also investigated. The CSR report was a proxy for

environmental voluntary disclosures. The Janis-Fadner coefficient was used as proxy to measure the

stakeholder perception. This coefficient is build on the relationship between positive and negative

environmental related articles. This study was based on the years 2003 and 2006. The sample was based

on companies from the five most polluting industries of the US. For measuring the voluntary

environmental disclosures, they made use of CSR reports and the quality of these reports was measured

with a self constructed index. In this study an important control variable was included the Toxic Release

Inventory (TRI) emissions. Emissions are mainly negative for the environment. There can be expected,

the public judges this emissions in a negatively, when making related information available. The overall

conclusion of this study was, CSR reports have a positive influences on the public sentiment CSR reports

increased the Janis-Fadner coefficient.

In the study of Brown and Dacin (1997) is argued that knowledge about a company, hold by consumers,

and affects the attitude and behavior towards the company. This affects was measured with a field

study, potential consumers were asked to evaluate products. CSR disclosures give consumers insight

knowledge about the social activities of the company. This knowledge will affect the consumer’s attitude

and behavior towards the company. A positive relation was observed, CSR disclosures influence

reputation. Especially an improvement of reputation takes place in countries where consumers have a

high level of awareness on social issues. Following the study of Lev, Petrovits and Radhakrishnan (2010)

this effect is extended to higher sales. In this study is argued that companies with better reputation face

an improvement in sales. This relation is stronger for companies who operate in the consumer market,

these companies have to deal with high levels of consumer’s sensitivity.

Ittner and Larcker (1998) found a positive association between consumers’ satisfaction and company’s

financial performances. Ittner et al. (1998) studied if financial performances are dependent on non-

financial measurements. Customer satisfaction is a proxy for measuring the non-financial performance.

The used customer satisfaction is highly dependent on CSR. In this study of Ittner et al. (1998) a positive

relation between CSR and customer satisfaction is concluded.

3.2.3 Financial impacts

CSR information provides information about future company’s performances. Expectations about future

performances have a financial impact. Financial performances are affected by a CSR report. The

reduction in information asymmetry and agency problem is influencing financial performances. This has

an influence on the public sentiment. Before already is described that the impact on the public

42 | P a g e

sentiment is affected by the agency theory, information asymmetry, legitimacy theory and stakeholder

theory. Due to improvements in public sentiment, total sales improve. Total costs can be reduced by a

decrease of pollution and litigation risks. Information holds by stakeholders increase, this will lower the

information asymmetry. Due to, the provided information, stakeholders are able to control

management on environmental and social behavior. There will be expected that this shall face a

reduction in cost of equity and cost of debt. Investors receiving more certainty about the company’s

performances. In the study of Lev et al. (2010) is argued that the improvement in public sentiment is

reflected in the increase of sales. The increase in sales has an influence on the financial performances of

the company.

In the study of Dhaliwal, Li, Tsang and Yang (2010, B) the relation between voluntary nonfinancial

disclosure and the cost of equity capital is researched. In this study there is made use of CSR reporting as

an indicator for voluntary nonfinancial disclosures. They only incorporate standalone CSR reports,

coming from U.S. companies. The level of the reports are ranked, this is based on the KLD social

performance ranking. If no standalone report is disclosed, the indicator variable will have a value of

zero. The used cost of equity is calculated by three different models, the mean of these models is used

to indicate the cost of equity. The founded variables are incorporated in two different regression

models. The cost of equity plays in important role in financing the company, this financing finally faces

results in the operational activities.

The first regression model of Dhaliwal et al. (2010, B) test if companies with high cost of equity are

more likely to disclose CSR information. This is researched by including all first-time reporting company

variables. The second model tests the negative relation between cost of equity and CSR reporting. In the

study of Dhaliwal et al. (2010, B) a negative relation between cost of equity and CSR reporting was

observed. Cost of equity is reduced after the implementation of the first CSR report. For well CSR

performing companies, this association is stronger. Companies which disclose better financial CSR

performances are more attractive for investors. (Dhaliwal et al., 2010, B)

The founding’s of Dhaliwal et al. (2010, B) are in conformity with the findings of Frankel, McNichols and

Wilson (1995). In their study they investigated the reason of providing voluntary disclosures. They argue

that companies which disclose voluntary information, wants to raise capital in the future. If companies

are providing more information than required, they will be followed by more investors. When providing

more information the cost of future raised capital will decrease. In this study also evidences is found

about the negative relationship between voluntary disclosures and cost of equity. These findings are

43 | P a g e

based on 1880 companies, from the New York Stock Exchange. Since CSR reports are voluntary

disclosures, this results are applicable to CSR reporting.

Richardson and Welker (2001) investigated in their study the relation between cost of equity and

financial and social disclosures. In this sample Canadian companies are included, in the period 1990 till

1992. For measuring the financial and social disclosures there is made use of a score, which ranks the

quality and quantity of the reports. A negative relation between cost of equity and financial disclosures

has been found. But surprisingly a positive relation between cost of equity and the quality and quantity

of social disclosures. This positive relation faces a reduction, when company has good financial

performances. There is argued that this surprising result is coming from bias in the social disclosures.

They claim, social disclosures add value to the company, not only the cost reduction is of importance but

also other benefits exist. Financial investors are not the only party which is affected by the social

disclosure, but also other stakeholders, for example consumers, are affected. The improvements in

customers’ satisfaction also play a role in CSR reporting.

The relation between firm value and voluntary environmental disclosures is examined in the study of

Plumlee, Brown and Marhshall (2008). The firm value is composed out of the cost of equity and the

future expected cashflows. The sample of this study includes 5 industry types (oil & gas, chemical, food

& beverage, pharmaceutical and electric utilities) from the United States. To measure the quality of the

environmental disclosures, they use a self constructed index, based on the GRI Report List. In this study

environmental announcement provided in the annual report are incorporated as well. The findings were

consistent with a positive relation between environmental disclosures and firm value. This implies a

negative relation between cost of equity and the quantity of environmental disclosures. More

information provided for the investors implies a reduction in the cost of equity. But the association

between future expected cashflows and environmental disclosures is positive, found in the study of

Plumlee et al. (2008). The present quality of the environmental performances, represent high financial

performances in the future.

The recent study of Clarkson et al. (2010) takes the economical and the social impact of voluntary

environmental disclosures into considerations. This study is based on the previous discussed studies of

Dhaliwal et al. (2010, B), Richardson et al. (2001) and Plumlee et al. (2008). Again in the study of

Clarkson et al. (2010), the CSR disclosures are taken as measurement for voluntary environmental

disclosure. The used sample in this study covers companies from the most polluting industries in the

U.S. The impacts of CSR disclosure on cost of equity, firm value and public perception are researched.

44 | P a g e

The researchers choose to investigate the effects of pollution industries, because these companies have

relatively high environmental expenditures. These high expenditures possibly affect firm value. In this

study also the environmental performances are taken in consideration. For measuring this, there is

made use of the Toxics Release Inventory (TRI) emissions. For measuring the impact of CSR quality, the

CSR report quality is based on a self constructed index of Clarkson, Li, Richardson and Vasvari (2008).

The firm value is measured by the stock prices at the end of the fiscal year. The cost of equity is based

on the average of two different models. In the study of Clarkson et al. (2010) there is found evidence

about the positive relationship between CSR disclosures and firm value. The provided information adds

incremental information for investors, these results from the changes in stock prices. The control

variable toxic emissions have a negative influence on the stock price. This is obviously, more toxic

emissions have a negative influence on the environmental performances of the company and this is

reflected in the stock price. The toxic emission data provides insight to the risk and future environmental

liabilities of the company.

In contrast with the study of Dhaliwal et al. (2010, B) the study of Clarkson et al. (2010) found no

evidence for a reduction in cost of equity. This difference can be explained by the differences in studies,

the study of Clarkson et al. (2010) studied the most polluting companies. Polluting companies are more

involved with risk related due to the pollution. This risk will increase the cost of equity of polluting

companies.

Carbon emissions are an important factor in the environmental performances of companies. Providing

information about this variable can be done with a CSR report. The influences of carbon emissions are

studied in the research of Matsumura, Prakash and Vera-Munoz (2010). In this study there is

investigated whether carbon emissions is associated with firm value and cost of equity and cost of debt.

The researched studied if disclosures of carbon emission have an impact on the firm value, cost of equity

and debt. Carbon emission is an important environmental performance, carbon emissions is a

measurement for the pollution of a company. This pollution amount is furthermore related to the

amount of future claims. When stakeholders are provided with carbon emission information, an effect

on financial variables is expectable.

For investigating the relationship between carbon emission on firm value, cost of equity and cost of

debt, Matsumura et al. (2010) made use of S&P 500 companies for the period 2006-2008. The data

about carbon emissions are observed from the Carbon Disclosure Project (CDP) database. CDP is an

organization which holds the climate change information of companies. In this study also a separation is

45 | P a g e

made between high and low carbon emitters. The highly carbon emitters are mainly the chemical,

utilities and computer and electronic product manufacturers. For testing the influences there is made

use of a regression, in this regression several control variables are implemented.

The results show a negative relation between firm value and carbon emissions. Companies with a higher

level of carbon pollution will face a lower level of firm value. This relationship is showed for the high

carbon emitters, but no negative relationship was found for the low carbon emitters. This conforms the

expectation, that carbon emission is more a concern of high carbon intensive industries. The negative

effect of carbon emission is reflected in lower level of firm value. Surprisingly a negative relation is

observed between carbon emission and the cost of equity. This relation is significant for the highly

carbon emitters and not significant for the low carbon emitters. At beforehand a positive relation was

expected, because the negative effect of carbon emissions should compensate investors. Therefore a

higher level of cost of equity due to an increase in carbon emissions was at beforehand expected. The

surprisingly negative relationship is showed for high and low carbon emission companies.

Some studies also investigate the financial impact of CSP. CSP is more focused on the performances and

the outcomes of the corporate social activities. Wood (2010) uses CSP to examine the impact of the

business-society relationships with financial results. The study of Wood (2010) is defined as a Meta

analyses, based on the findings of other studies the financial impact of business-society relationships is

investigated. The financial impact of CSP contains the impact of the content of a CSR report. The studies

of Orlitzky, Schmidt and Rynes (2003) and Margolis, Elfenbein and Walsh (2007) studied the impact of

CSP on financial performances. They both used a Meta analysis to examine the relationship. Orlizkey et

al. (2003) takes 52 studies with 33.878 results into account and found a positive relationship. Margolis et

al. (2007) also found a positive relationship, based on 167 studies. But the writers of this study claim

that the founded relationship was a ‘mildly positive relationship’.

Wood (2010) judged prior research on the relationship between CSP and financial performances. She

concluded that the research on this relationship is already well established. Wood (2010) concludes that

the research on CSP should be more relevant for stakeholders and society. She observed a limitation in

present studies, that they are now more focused on the company’s itself. This limitation can be found in

the study of Orlitzky et al. (2003) in this study the CSP are measured by 4 company’s components, the

CSR disclosure, the reputation ratings, the social audits, CSP processes and observable outcomes and the

managerial CSP principles and values. These components don’t include measurements of stakeholders

46 | P a g e

and society. At least Wood (2010) concludes that the research in CSP should be more linked to other

research fields, for example, human resources, sociology and business ethics.

3.2.4 Summary impacts

In previous parts the results of previous literature are discussed. The tested relationship is between CSR

reporting and forecast accuracy, CSR reporting and public sentiment and between CSR reporting and

financial performances. For providing an overview the results of these studies are summarized in the

tables below.

Table: Summarization of prior research of impact on forecast accuracy

Study Tested relationship Used proxies Time period

Founded relationship

Dhaliwal, Radhakrishnan, Tsang and Yang(2010)

CSR disclosures related to the forecast accuracy (among countries)

Standalone CSR report and actual forecast error

1990-2007 Positive

Lang and Lundholm (1996)

Disclosures related to forecast accuracy

Financial and non financial disclosures, rated to FAF rating and actual forecast error

1985-1989 Positive

Hope (2003) Disclosures related to forecast accuracy

Financial and non financial disclosures, rated to CIFAR score and actual forecast error

1991 and 1993

Positive

Table 4: Summarization of prior research of impact on public sentiment

Study Tested relationship Used proxies Time period

Founded relationship

Clarkson, Hua Fang, Li and Richardson (2010)

Environmental voluntary disclosures related to social (public perception) and financial impact

CSR report, quality is based on index and Janis Fadner coefficient

2003 and 2006

Positive

Brown and Dacin (1997)

Knowledge of company related to consumers

Field study, evaluation of products

1996 Positive

47 | P a g e

behavior and attitude

Ittner and Larcker (1998)

Non-financial performances and financial performances

Customer satisfaction (costumer, business unit and firm level data)

1994 and 1995

Positive

Table 5: Summarization of prior research of impact on financial performances

Study Tested relationship Used proxies Time period

Founded relationship

Margolis and Walsh (2003)

Corporate social performances related to cost of equity

Results of prior studies 1972-2003 Positive

Dhaliwal, Li Tsang and Yang (2010

Environmental voluntary disclosures related to cost of equity

Standalone CSR report, rated on KLD ratings and cost of equity

1993-2007 Negative

Richardson and Welker (2001)

Social and financial disclosures, related to cost of equity

Social and financial reports ranked with a quantity and quality score and cost of equity

1990-1992

Negative (financial disclosures) Positive (social disclosures)

Plumlee, Brown and Marhshall (2008

Environmental voluntary disclosures related to firm value

CSR report, ranked on GRI score and cost of equity and future expected cashflows

negative

Clarkson, Hua Fang, Li and Richardson (2010

Environmental voluntary disclosures related to social and financial impact

CSR report, quantity is based on index, cost of equity and firm value and TRI emissions

2003 and 2006

No relationship (cost of equity) and Positive (firm value)

Matsumura, Prakash and Vera-Munoz (2010).

Carbon emissions related to environmental performances

Disclosed carbon emission data, firm value and cost of debt and equity

2006-2008

Negative (firm value), Negative (cost of equity) and Positive (cost of debt)

Chapter 4 Hypotheses development

In chapter 3, the incentives and implementation of a CSR strategy are described. The CSR report is seen

as the last step in the implementation of a CSR strategy. In a CSR report the CSR performances are

disclosed. The third chapter also described the impacts of CSR reporting. Financial impacts can be

observed as a result of a CSR disclosure, but impacts on the forecast and the public sentiment are also

observable. This paper focuses on the impact on the reputation. The terms reputation and public

sentiment are used interchangeably in this paper. In previous research the term public sentiment is

48 | P a g e

often used, but stakeholders’ impression is more directly reflected with reputation. In this paper the

impact of CSR reporting on reputation is examined.

This chapter describes the development of the hypothesis. The hypothesis is based on the impact of the

reputation, the effect on the reputation was already investigated in prior research. But additional

research should be done to test the impact of CSR reporting on reputation. To test the relation between

CSR reporting and reputation, five sub hypotheses are formulated. The first paragraph of this chapter

describes the development of the main hypothesis. In paragraph two, the differences between the

developed hypothesis and the existing literature are described. In the third paragraph a description is

provided about the sub hypotheses.

4.1 Development of the main hypothesis

Changes in financial performances can be observable after disclosing a CSR report. Information which is

disclosed in a CSR report provides an overview of the past CSR performances of the company, a reaction

on the financial side is expectable. The financial impacts of a CSR report are already well investigated in

existing literature. In this thesis, the focus is not on the financial impacts but more on the social side of

the company, the reputation.

In a CSR report, the performances related to the CSR strategy are described. When making CSR

performances publically available, all stakeholders will be influenced. If a CSR strategy is implemented in

the company, the company is aware of the social and environmental consequences of production. The

performances related to the CSR strategy influence the investors’ perception of the company, but also

the perception by customers and environmental foundations are influenced (Clarkson et al., 2010). CSR

strategy is a social concept, which incorporates different stakeholders. The whole society is indirectly

affected by the CSR performances of the company. The impact contains the whole society, this makes it

interesting to investigate the impact of CSR reporting.

Prior studies examined the environmental and social performances of companies, for example the study

of Clarkson, Li and Richardson (2004). This study distinguished two types of environmental performers:

good environmental performers and poor environmental performers. Companies that can be considered

as good environmental performers are exceeding current environmental regulations. On the other hand,

poor environmental performers are companies that are meeting the minimum level of environmental

49 | P a g e

regulations. Clarkson et al. (2004) argue that companies that are good performers benefit from the

exceeding. But poor performers do not receive benefits related to environmental regulations, but

instead face obligations to incur future expenditures. When a company reaches a minimum level of

environmental regulations, it can be expected that future pollution and litigation costs increases.

Clarkson et al. (2004) described, that poor environmental performance companies have lower

environmental benefits. But due to the lower level of regulations they also have lower costs. Clarkson et

al. (2004) described only the financial effects of good and poor environmental performances, but social

effects are also expectable. The disclosure of a CSR report, which incorporates environmental and social

performances, provides insight in the distinction between good and poor performances. The good and

poor CSR reporting performers are observable by the quality of the CSR report. When a company

provides a high quality CSR report, CSR reporting guidelines are followed in a proper way. CSR reports

that meet lower levels of CSR quality are to a lesser degree in conformity with CSR reporting guidelines.

In the remainder of this chapter the above described expectation of CSR reporting quality on reputation

is discussed.

The agency problem will be reduced after the CSR report disclosure. When a CSR report is of higher

quality, the report takes more guidelines into consideration. Guidelines of reporting increase the

transparency, so it can be expected that higher quality CSR reports result in a lower agency problem.

Stakeholders observe more transparent information, to monitor management’s CSR behavior. The

information asymmetry reduces. (Healy et al., 2000) The company makes decisions in favor of society, to

obtain power from society (Rodriguez and LeMaster, 2007). Communicating CSR information, is in

conformity with the legitimacy theory (Lightstone et al. (2008) and Lui et al. (2008), Cho et al. (2007)

and Dowling et al. (1975). The public is more satisfied when it is provided with more reliable

information. The quality of the CSR information is represented by the quality of the CSR report. Based on

the legitimacy theory it can be expected that managers wants to develop a high quality CSR report, to

obtain more legitimacy from the public. The stakeholder theory implies that companies disclose a CSR

report based on the pressure of stakeholders (Rodriguez and LeMaster (2007) and Huang et al. (2010).

The public will benefit from this, when management acts more in conformity with the CSR desires of the

public. The public will value this in a positive way, which leads to an increase of the reputation (Clarkson

et al., 2010). The public values CSR positively (Formbrund and Shanley, 1990). This implies that the

quality of the information provided in a CSR report will also increase the reputation. The agency

50 | P a g e

problem, information asymmetry, the legitimacy theory and the stakeholder theory expects that from

CSR reporting the reputation increases. This expectation results in the following hypothesis:

CSR reporting quality increases the reputation of a company.

Reputation is the impression the public has about the company. CSR reporting has an impact on the

reputation, this impact can be positive or negative, dependent on the published information. Since CSR

reports provide information about past CSR performances, an influence on reputation is expected.

Argued by Clarkson et al. (2004) and Patten (2002) public sentiment can be influenced in a positive way

due to environmental performances.

4.2 Difference compared to previous studies

The public sentiment in relation to CSR has already been investigated in the studies of Brown et al.

(1997), Ittner et al. (1998) and Clarkson et al. (2010). They all found a positive relation between CSR

disclosure and the public sentiment. But there are several differences between the design of these prior

studies and the design of this paper. One of the differences is located in the used proxies of measuring

reputation. Clarkson (2010) used the Janis-Fadner coefficient. This coefficient uses positive and negative

environmentally related articles that are published about the company. This is not the most accurate

tool for measuring public sentiment. These environmentally related articles are published by different

media and read by a different public. Clarkson et al. (2004) suggest that, to formalize a judgment the

public will use the positively and negatively related articles. The judgment of the whole public together

is reflected in the public sentiment. Clarkson et al. (2004) measure this public sentiment by a formula

that incorporates the number of negatively and positively related articles. So they suggest that

companies, which have exactly the same number of positive and negative environmental articles also,

have the same public sentiment. With this formula it is suggested that all articles have the same impact

on public sentiment. This is not an accurate representation, since articles face different levels of impact

on the public sentiment. For instance, if a negative environmental article is published in countries most

popular newspaper, a bigger influence on public sentiment is expected, in comparison with the article

being published in a small local newspaper. Therefore it is not accurate to suggest that all negative (or

positive) articles have the same influence on public sentiment.

51 | P a g e

In the study of Brown et al. (1997) a field study is used for analyzing the public sentiment. In this field

study, potential consumers are asked to evaluate products on the CSR performances. The products are

separate analyzed. It is very difficult to evaluate all existing single products. When companies provide a

service, not a real tangible product is delivered, analyzing an intangible product is more difficult. Also it

can be expected that companies that deliver products or services to specific industries and not to

consumers, are not well evaluated by public. The public does not own enough detailed information to

evaluate the products or services in an accurate way. When the public is evaluating these unknown

companies, the evaluation is based more on the image of the company. For example, when the public

only knows the logo of the company, the evaluation is mainly based on the associations with this logo.

The study of Brown et al. (1997) focuses more on the marketing side. The evaluating of products by the

public will be based on all information held by the public of the particular product. This information can

be influenced by marketing. Marketing is an important tool, it has the purpose to influence the

information known by the public about products in a positive way. Therefore evaluating products to

observe the impact of CSR is not a right method. Consumers are not able to evaluate correctly the

companies CSR performances based on product evaluation.

Ittner et al. (1998) used the proxy customer satisfaction as a tool for measuring the non financial

performances of the company. In their study the relation between financial performance and non

financial performances are investigated. When customer satisfaction is taken as a proxy for non financial

performances, they assume a perfect relation between customer satisfaction and non financial

performances. In this study the level of customers’ satisfaction is build upon three different variables,

the customer, business unit and firm level data. It cannot be assumed that customers’ satisfaction has a

perfect relationship with non financial performances. Because customers satisfaction is dependent on

many criteria. Therefore, the study of Ittner et al. does not make the right assumption about the perfect

relation between customer satisfaction and non financial performances.

The used proxies in previous studies are not the only reason for developing this paper for examining the

relationship between reputation and CSR reporting. Also the focus of the studies differs. In the study of

Clarkson et al. (2010) it is investigated whether a positive relation between public sentiment and

environmental disclosures exists. For this study they researched companies that are operating in the five

most polluting industries in the US. The outcome was a positive relation between the Janis-Fadner

coefficient and the CSR disclosures. The polluting industries do not represent all companies, so the

outcomes are only useful for the polluting industries. In the developed hypothesis no restriction of

52 | P a g e

companies or industries has been made, so the outcomes will be representative for all companies and

industries.

4.3 Development of sub hypotheses

The relation between the reputation and CSR reporting is influenced by many factors. A selection of the

expected influencing criteria has been made. In this paragraph the criteria are described and the

expected influences are provided.

The size of a company is a factor that has an impact on the reputation and the CSR report. Larger

companies face more public attention, through their larger size they are well known. More stakeholders

are involved in the processes of the company, the company reaches a larger public. When more

stakeholders are involved in the company, the company is facing more pressure to pursue a good

reputation. If the company implements a CSR strategy, the company is aware of negative environmental

and social influences of their production. A CSR report provides more transparency in the CSR

performances of a company. From the agency theory and information asymmetry it can be expected

that public values the CSR reporting positively. This results in the expectation that CSR reporting

improves reputation. The public is more aware of the impact of larger companies (Huang et al., 2010)

these larger companies have more incentives to provide a complete and high quality CSR report. Besides

the role that size influences company’s public attention, size also plays an impact on the financial

resources. In the study of Dhaliwal et al. (2010, A) it is argued that larger companies have more financial

resources available to develop a CSR report. This implies that larger companies are more willing to invest

in CSR activities and disclose these performances in a CSR report. So larger companies will achieve a

reduction in information asymmetry and the agency problem which results in an increase of the

reputation. The following sub hypothesis can be inferred.

The relationship between CSR reporting quality and the reputation is positively influenced by

larger companies.

Financial performances of companies are also an important element in the relation between CSR

reporting and the reputation. Argued by Dhaliwal et al. (2010, A) companies with better financial

performances have more financial resources available to implement a CSR strategy and disclose a CSR

report. In the study of Dhaliwal et al. (2010, A) the impact of the cost of equity on CSR reporting was

53 | P a g e

studied. In this study evidence is found that cost of equity decreased after the first CSR disclosure. So a

financial advantage due to the CSR disclosure was observable, investors valued the CSR disclosure

positively. The CSR disclosing companies face a higher amount of new equity, then in comparison with

not disclosing CSR companies. Also it can be expected when companies have a good financial

performances, they have an improved influences on the society. Good financial performers provide

benefits for the society. For example, the companies pay more taxes and also have more employees.

This leads to an increase in reputation. The effect of financial performances on CSR reporting and

reputation is incorporated in the following sub hypothesis:

The relationship between CSR reporting quality and the reputation is positively influenced by

better financial performances.

The reputation of companies is dependent on the level of customer satisfaction. Companies are able to

influence the satisfaction levels. Companies have the opportunity to provide additional services when

selling products or services. When these products or services are delivered with additional services,

customers appreciate this, resulting in a higher customer satisfaction. An improved reputation follows

due to the provided additional services. A company can differentiate from other companies when

building a good reputation. If a furniture shop provides a well structured delivery service, the reputation

of the company improves. Due to this delivery service the company can differentiate from other

furniture shops. The expenses that represent the services which are provided to the sold products and

services are the selling general and administrative (SG&A) expenses. Argued by Palepu, Healy and Peek,

(2010) the amount of the SG&A expenses will represent the level of services which lead to customer

satisfaction. When a bigger amount of SG&A expenses are provided per amount of sales, reputation

faces an improvement. This expectation is expressed in the following sub hypothesis:

The relationship between CSR reporting quality and the reputation is positively influenced by

higher general selling and administrative expenses to sales.

Awareness of social and environmental issues is dependent on many circumstances. For example, the

economical situation of countries is important for CSR related activities. When in countries a good

economical environment exist, more financial resources are available to invest in CSR strategy. This will

influence the reputation. Also many other country specific circumstances are influencing the decision

making process, from choosing a CSR strategy to disclosing a CSR report. When the government

stimulates companies to implement CSR strategy and to provide information about the CSR

54 | P a g e

performances in a CSR report, more companies have incentives for the implementation of CSR strategy

and the disclosure of a CSR report. This country specific circumstance is observed in the study of

Dhaliwal et al. (2010, A). In this study evidence is found that the power of the relation between CSR

disclosures and forecast accuracy is different among countries. Countries with more stakeholder

orientation are facing a stronger relation. Countries can have a hidden information culture, in these

countries significantly less information is provided to stakeholders. These country specific factors will

influence the CSR report disclosure behavior, which finally have an influence on the public reputation.

The following sub hypothesis will show this expectation:

The relationship between CSR reporting quality and the reputation is influenced by regions of

companies.

Not only country specific circumstances have influences on the CSR reporting behavior, but also industry

circumstances have influences on the CSR report behavior. In the study of Richardson et al. (2010) the

control variable Toxic Release Inventory (TRI) emissions is included. The study investigates companies

from the five most polluting industries. This TRI variable is seen as a measurement for relative

environmental performance and is used to rank the companies within an industry. Evidence is found

that the TRI emission has a negative impact on firm value and a positive impact on the cost of equity.

These findings are explained by the possible future liability claims, which lower the firm value. It can be

assumed that TRI emissions differ among industries. For example, financial services companies face a

lower level of toxic emissions than industrial companies. Companies that operate in an industry with

high levels of TRI emissions are harming the environment. This is valued in a negative way by the public

and results in a lower reputation. From the legitimacy theory it is expected, that companies operating in

high emissions industries have a high awareness of social and environmental issues. The expected effect

on reputation and the awareness of CSR reporting among industries implies that the investigated

relationship will differ. This expectation is implied in the following sub hypothesis:

The relationship between CSR reporting quality and reputation is influenced by industries of

companies.

4.4 Summary hypothesis development

This chapter introduced the main hypothesis of this paper. The expectation is that a CSR report

positively influences reputation. This reputation is dependent on the available information of the

company. Due to a CSR report more information becomes available and this improves the reputation.

55 | P a g e

Some previous studies already observed a positive relation between these two variables, but used a less

accurate proxy for the reputation or measured the impact of only particular industries.

Chapter 5 Methodology

In the previous chapter the hypotheses are developed, these developed hypotheses are tested in the

empirical research. In this chapter the design of the empirical research is described. In the first

paragraph the development of the sample is provided. In the second paragraph the methodology for

investigating the relationship between reputation and CSR report disclosure follows. The third paragraph

provides an explanation of the used data.

56 | P a g e

5.1 Sample

In this paper the impact of a CSR report on the reputation of companies is tested, related data about the

reputation and CSR reporting is used. Two important databases are used to obtain the relevant data of

the reputation and the CSR report. In this paragraph, first the used databases are discussed and

thereafter the relation with the observed data is explained. The final part of this paragraph explains the

sample size and the time period.

5.1.1 Used databases

For observing the reputation, the reputation index is used. The reputation index ranks companies based

on their reputation. The reputation index formulates public attitude to companies. For obtaining this

reputation index, the Fortune 500 database is used. The reputation index and components of the

reputation index of the Fortune 500 are used in the studies of Griffin and Mahon (1997), Brown and

Perry (1995) Conine and Madden (1987), Formbrund and Shanley (1990) and Mc Guire, Schneeweis and

Branch (1998). The Fortune 500 database is a service provided by CNN Fortune & Money. Each year, the

Fortune database ranks companies on reputation. CNN Fortune & Money formulate a ranking list which

is called Most Admired Companies and is based on the reputation index. The reputation index is

composed on nine key components which influence the reputation index5. Directors, security analysts

and executives define the reputation of companies on the nine different components. Results of

respondents are taken together, which leads to the final reputation index of the Fortune 500.

The second important database is the Global Reporting Initiative (GRI) Report List. This database asses

the level of a CSR report. The GRI Report List is provided by the GRI. In this list the level of CSR reports

are provided, this level is based on the degree of applying the guidelines of the GRI. The GRI calls this

level the application level. In the application level, no judgments about the CSR performances are

included. Companies are free to decide if their CSR report is included in the GRI Report List. This implies

that it is not certain that companies which are not included in the GRI Report List are not disclosing a

CSR report.

5 Nine components of the reputation index: innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investments, quality of products/services and global competitiveness. Source: http://money.cnn.com/magazines/fortune/mostadmired

57 | P a g e

5.1.2 Development sample and time period

In the Fortune database, reputation indexes of more than 700 companies over the time period 2006 up

till and including 2011 are incorporated. The GRI Report List includes more than 2700 disclosed CSR

reports, in the timeframe from 1999 up till and including 2010. Of companies which are included in the

sample, the two core variables reputation index and level of CSR report should be known. Therefore the

companies, which occurred in both databases, are included in the sample. But also the data should be

matched with the expected time lag of the reaction of the CSR reporting on the reputation index. This

implies that the reputation of next year is affected by the CSR report of prior year. As a consequence the

reputation index of 2006 should be matched with the CSR report information of 2005. The Fortune

database starts in 2006, which matches with the CSR reporting quality of year 2005. Because a very

limited amount of companies have registered their CSR report of 2010 on the GRI Report List, year 2010

is not incorporated in the time period. Finally this leads to studying the relation between CSR reporting

quality and reputation between 2005 and 2009.

After finding common companies of the Fortune database and the GRI Report List, the sample included

almost 300 companies. In the sample only companies should be included which match the CSR report

level and next year reputation index, there for only 250 companies were finally incorporated. This

sample is further declined by companies of which the control variables are not observable, for example,

due to the acquisition of Air France-KLM the financial control variables of this company are not

observable in the selected time period. For a limited amount of companies (32) data about level of CSR

report and reputation index are known for the whole selected time period, but all companies are

incorporated in the sample. For the years 2005 up till and including 2009, 85, 106, 138, 167 and 175

respectively data points are included, which have a total sample size of 671 data points. These data

points are companies of which all variables are known, including the control variables. In appendix A the

total sample is showed.

5.2 Methodology of statistical research

To investigate the relation between CSR reporting quality and the reputation linear regression analysis is

used. When making use of a regression formula, the existence of a relationship is observable. In the

hypothesis is predicted, that CSR reporting quality influences the reputation. Therefore in the developed

58 | P a g e

regression model, the reputation is predicted by the CSR reporting level. This is called the basic model.

This basic model is shown below:

REPt = α + β1CSRt-1 + ε

For providing more evidence on the regression, control variables should be included. The control

variables represent the sub hypotheses. The use of control variables is important, because it is not

plausible that CSR reporting is the single variable that has influence on the relation between CSR

reporting and reputation. When a single control variable is included in the basic model the influence of

the control variable is tested. Finally all control variables are included in the regression model. This leads

to the following regression model:

REPt = α + β1CSRt-1 + β2SIZEt-1 + β3FPERt-1 + β4SGASt-1 + β5REG + β6IND + ε

REP Reputation of companies (observed from the reputation index provided by the Fortune 500)

CSR CSR report level (observed from the application level provided by the GRI Report List)

SIZE Size of the company, based on the total sales (observed from Thomson One Banker)

FPER Financial performances, based on the return of assets (observed from Thomson One Banker)

SGAS Selling general and administrative expenses related to sales (observed from Thomson One

Banker)

REG Region where the company is from (observed from the GRI Report List)

IND Industry wherein the company operates (observed from Thomson One Banker)

A linear regression is used to test the expected relationships. The dependent variable REP, is predicted

on basis of the independent variables. In the regression model qualitative variables are included. The

influence of the qualitative variables in general are measured by making use of the above described

method, this method is called Method 1. The variable CSR reporting level is a qualitative variable. In

method 1 is measured if CSR reporting level has an influence on the reputation.

Besides the general influence of the qualitative variables, it is also interesting to investigate if a specific

CSR report level has an influence on the reputation. These influences of the specific categories in a

qualitative variable are measured with method 2. In method 2 dummy variables are used. The amount

of dummies which represent the qualitative variable is always one less the amount of categories in the

qualitative variable. The coefficient of the dummy variables reflects the difference in impact with the

59 | P a g e

reference variable. This reference variable is the variable which is excluded in a dummy variable. The

influence of the category wherefore no dummy is developed, contains the constant variable.

Besides a regression a correlation is used to investigate the relation between two variables. The

correlation represents the relation between two variables in both ways. These both ways implies that

the influence of the dependent variable is also investigated on the independent variables. The outcome

of the correlation, examines if two variables can predict each other. A correlation with a categorical

variable is impossible, therefore the One Way Anova test will be used to investigate the relation.

5.3 Data

In the previous paragraph the regression formula was introduced. In this paragraph the developed

variables are introduced. Also the expectations about the influences of these variables in the regression

formula are described.

The REP is stated for the reputation, this is the dependent variable of the model. The reputation index is

used as a proxy for reputation. In the first paragraph of this chapter already a description has been given

about database and the development of this reputation index. The taken reputation which is

corresponding with the CSR disclosure is one year later than the CSR disclosure.

The variable CSR is stated for the quality level of a CSR report. As has already been discussed, this level is

observable in the GRI Report List. Nine different application levels exist in the GRI Report List, the A+, A,

B+, B, C+, C, U, IA and CI. The levels A+, A, B+, B, C+, C and U are application levels for reports that

conform the GRI G3 Guidelines, which were launched in 2006. The A+ rating is the highest rating and the

C is the lowest rating. CSR reports obtain the U rating when the quality of a CSR report is not defined.

The quality levels IA and CI are based on the GRI G2 Guidelines from 2002. The IA level is for CSR reports

which are ‘In Accordance’. The CI level is applicable for CSR reports which are ‘Content Index Only’

checked. Since the level of a CSR report is a qualitative variable, the CSR variable in the regression

formula is tested with a dummy variable.

The control variable SIZE is stated for the size of the company. The size of a company is measured with

the logarithm of the total sales. Total sales of a particular year have an influence on the reputation of

the following year. In the study of Dhaliwal et al. (2010, A) the total sales are also used to measure the

size of a company. The logarithm has the result that the total sales are normal distributed, which is an

60 | P a g e

important condition of regression. The total sales are observed from the financial database Thomson

One Banker. In the hypotheses development is already stated that larger companies are facing more

public attention. This will result in more pressure to disclose a well qualified CSR report. Therefore a

positive sign of the size coefficient is expected.

Financial performances are also included in the regression, this is represented by the FPER variable. To

measure the financial performances return on assets (ROA) is used as a proxy. This variable reflects the

financial performances compared with an item to reflect the company size. The financial performances

should be controlled for size, because larger companies have better absolute financial performances.

The ROA is a relative financial performance measurement, it measures how beneficial the assets of the

company are. The financial performances of a particular year influence the reputation of the next

following year. The ROA is observed from Thomson One Banker. It is to be Expected that good financial

performances have a positive influence on the reputation, other variables can be used to measure the

financial performances. A positive sign of the financial performance coefficient is expected.

The SGAS variable is stated for the percentage of selling general and administrative expenses to sales. In

the hypotheses development was predicted that selling general and administrative expenses

expectantly have a positive influence on the reputation. The SGAS control variable is stated for the

reputation expenses. This variable is controlled for the sales, because, there can be assumed that the

percentage of selling general and administrative expenses relative to sales makes a difference in the

level of reputation. Also the variable has influence on the reputation of next year. The selling generals

and administrative expenses to sales are observed from Thomson One Banker. For this variable a

positive sign of the coefficient is expected.

The hypothesis about the influence of countries on the relation between reputation and CSR reports is

tested with the variable REG. The companies in the sample come from six different regions and 26

countries. The regions are Europe, Northern America, Latin America, Africa, Asia and Oceania. The

countries are clustered in this six regions, the sample is too small to investigate the influence of each

individual country. This variable is also a categorical variable, in the regression formula dummies are

used to investigate the influence of a specific region relative to another region. For this categorical

variable no prediction can be made on the direction of the influence on the reputation and CSR

reporting. At least, expectations can be made that there are differences observable among the different

regions.

61 | P a g e

The final variable IND contains the hypothesis of the differences of influence between industries. A

separation of the types of industry is made based on the Industry Classification Benchmark (ICB). This

benchmark divides sectors in ten industries. These industries are: Oil & Gas, Basic Materials, Industrials,

Consumer Goods, Health Care, Consumer Services, Telecommunications, Utilities, Financials and

Technology. This categorical variable is in the second method represented with dummies. No

expectations can be made about the influence of specific industries on the reputation. None the less

differences in the influence on the reputation among industries are expectable.

Chapter 6 Analytical Results

In the previous chapter the data and the method for the statistical analysis is explained. In this chapter

the results of the analysis are described. First, a description is provided about the data. The changes in

data are summarized during the time period. In the second paragraph, the results of the statistical

analysis are described. The statistical analysis contains the correlation and the regression between CSR

reporting and reputation.

62 | P a g e

6.1 Descriptive analysis

The whole sample over the entire time period includes 669 data points. In this paper there is no focus on

the results of the entire period, because the separate years and their data are more important. The

individual years have different amounts of data points, year 2005 has 85 matching data points, where

the matching data points in 2009 increased to 175. When all years are taken together, the results are

biased due to years which provide more data. Also some companies have matching data for the whole

time period (for example, Henkel and Volvo). But other companies have matching data for a few

selected years in the time period (for example, Reckitt Benckiser Group and Bridgestone). When there is

focus on the entire time period, the results are biased because companies which have all data of the

entire time period are more represented in the sample. Therefore the results of the individual five years

are explained. This paragraph has the purpose to provide a description of the data in the five different

years.

In table 6 the distribution of the different CSR report levels over the years are summarized. This table

shows IA and CI level do not appear in the years after 2006. This is in conformity with the IA and CI level

assessed according to the G2 guidelines. The remainder levels, A+ up till U are assessed according to the

G3 guidelines, which are initiated in 2006. After 2006 the CSR reports are judged on the level of the G3

guidelines, this explains the lack of IA and CI level reports after 2006. Before 2006, some CSR reports

(18,8% for 2005 and 56,6% for 2006) already took the new G3 guidelines into consideration.

Table 6: Distribution of the CSR reporting levels from 2005 till 2009.

63 | P a g e

A+ A B+ B C+ C U IA CI0.0

10.0

20.0

30.0

40.0

50.0

60.0

Distribution of CSR report level over the years

20052006200720082009

CSR Report Levels

% o

f tot

al C

SR re

port

s

When the years are taken into consideration which includes reports that are judged on the G3

guidelines, no increase in CSR report level is observed. The percentages of reports that meet the A+ level

indeed increases over time (from 13,0% in 2007 till 19,4% in 2009), also the B level increases (from

12,3% in 2007 till 18,9% in 2009). From these single level increases it is not possible to conclude a

general increase in CSR report level. In this table it is not possible to assess, of which CSR quality level

the increases in A+ and B levels come from.

None the less it is possible to conclude, that the percentage of reports of which no level is defined (the

U level) decrease over time. When the reports which are conform the G3 guidelines are taken into

consideration over the years 2005 and 2006, the percentage of undefined report level is 53,3% for 2005

and 37,5% for 2006. After 2006 the amount of the U level reports increase once in 2007. A presumption

can be made that the undefined level reports in 2007 also include CSR reports which were still in

conformity with the G2 guidelines. Since no additional information is given from the GRI Report List on

which characteristics the U quality level is judged, no statements can be made to assess the increase in

2007.

Table 6 provides the participation of the different CSR report levels in the five selected years. It is

important to show the distribution of the different variables over the CSR reporting levels. This is shown

in Appendix B. The distribution of CSR reporting levels over the control variables, (size, financial

performances, selling general & administrative expenses to sales, region and industry) is shown. The

64 | P a g e

qualitative variables region and industry are divided in the predetermined regions and industries, where

the continuously variables size, financial performances and selling general & administrative expenses to

sales are divided into categories. In the distribution the average, medium and maximum amounts are

considered. In the appendix is shown how much of the CSR reports, which meet a certain quality level,

meet a specific category of the remainder variables. This implies 1,2% of the companies included in the

samples have a CSR report in 2005 which meet the A+ level and have sales less than 50 billion Dollar.

Appendix B indicates that companies which disclose a CSR report conform the A+ level, mainly come

from Europe. With this assumption a note should be made, most included companies come from

Europe, Northern America follows directly on Europe, Asia is in third place, thereafter Latin America,

Africa and Oceania follow. When taking this distribution into account for all years, Europe scores better

than Northern America on the A+ level. From this appendix can be obtained that Northern America

provides more CSR reports which meets the levels B, C+, C and U than Europe does.

Remarkable is that a relative high percentage of the A+ reports meet the lowest category of the selling

general & administrative expenses to sales. In 2009 36,1 % of the companies in the sample have

expenses to selling general & administrative to sales of less than 15%. Also in 2009 19,4% of the CSR

reports meet the requirements of the A+ level. Therefore it can be expected that approximately 7%

(36,1*19,4%) of the CSR reports in 2009 meet the A+ level and the lowest selling general &

administrative expenses to sales category. In reality this is 9,7%, in comparison with the expectation of

7% this is a difference of almost 40% ((9,7-7)/7*100). This implies that the CSR reports which have a low

selling general & administrative expenses to sales and the A+ level is relative high. The above described

example of the relative high existence of A+ level CSR reports in the lowest level of the selling general &

administrative expenses to sales in 2009, is also applicable for the years 2005 till 2008.

In the distribution of all CSR reporting companies over the different industries no big differences occur.

Also the distribution of the quality level of CSR reports over the different industries, are no big changes

in time. This also applies for the variables size and financial performances.

65 | P a g e

6.2 Statistical Results

To answer the main hypothesis about the impact of the CSR reporting on the reputation, the

methodology which is developed in chapter 5 shall be followed. This is done by using the statistical

program SPSS. In this paragraph the results of the SPSS output are presented. All these outputs

investigate whether the expected relationship occurs. First the results of the correlation are explained,

thereafter the results of the regression.

6.2.1 Correlation

The correlation is a measurement to observe the relation between two variables. For measuring the

relation between continuously variables, the correlation should be used. The correlation cannot be used

if one or two of the variables are qualitative variables, another measurement should be used to

investigate this relation. First the correlation between the continuously variables, (reputation, size,

financial performances and general selling & administrative expenses to sales) is shown. Thereafter the

relation between the qualitative variables (CSR report level, region and industry) on the reputation is

discussed. To measure the relation between a continuously variable and qualitative variable One Way

Anova test is used.

The correlation can be positive or negative, dependent of the sign of the coefficient. A positive

coefficient implies a positive relationship and a negative coefficient implies a negative relationship. The

degree of connection is dependent of the value of the coefficient. When the coefficient is zero, no

connection is observable. A value of minus one or plus one, implies a perfect relationship.

In this paper a significant level of 10% is used, this implies a correlation coefficient with p-values above

10% no connection is demonstrated. In table7 below, the correlation coefficients are provided between

the reputation, size, financial performances and the general selling & administrative expenses to sales.

In this table the significant relations are divided into the degree of significantly. When a coefficient is

displayed with 3 stars, the coefficients is also significant at a lower level (p < 0,01).In this paper the

effects of different variables on the reputation are examined, therefore the significant results of the first

column are explained.

66 | P a g e

Table 7: Correlation between the continuously variables

*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1

67 | P a g e

Rep. Size Fin. PerfSG&A to Sales

Rep.2005 1 0,236** 0,237** -0,1412006 1 0,146** 0,263*** 0,0822007 1 0,164 0,129* -0,0572008 1 0,081 0,432*** -0,0242009 1 0,067 0,365*** -0,011

Size2005 0,236** 1 -0,292** -0,1522006 0,146** 1 -0,066 -0,1112007 0,164 1 -0,057 -0,248***2008 0,081 1 0,017 -0,263***2009 0,067 1 -0,078 -0,039

Fin. Perf.2005 0,237** -0,292** 1 -0,054

20060,263*** -0,066 1 0,155

2007 0,129* -0,057 1 0,048

20080,432*** 0,017 1 0,148**

20090,365*** -0,078 1 0,177**

SG&A to Sales

2005 -0,141 -0,152 -0,054 12006 0,082 -0,111 0,155 12007 -0,057 -0,248*** 0,048 12008 -0,024 -0,263*** 0,148** 12009 -0,011 -0,039 0,177** 1

This table demonstrates the years 2005 and 2006 size and reputation have a positive relation. Larger

companies have higher reputation indices, which are conform the legitimacy and stakeholder theory.

Larger companies face more public attention and more pressure to reach a high reputation. The

connection is not very strong, but still some connection between the two variables exists in the years

2005 and 2006.

Between financial performances and reputation a relation is observable for all years. This relation is

positive. This relation implies financial performances of a company have a positive influence on

reputation. When a company has better financial results the reputation index of this company improves.

The value of the relation improves over time from 0,236 till 0,365. This implies an increase of the

relation between financial performances and reputation over time. Financial performances become

stronger criteria for reputation.

The above discussed correlation coefficients measure the connection between two continuous variables.

In the designed methodology qualitative variables are also included. To investigate the connection

between reputation (continuously) and CSR report level, region and industry (all qualitative variables)

the One Way Anova test should be used. From the results of One Way Anova no statements are

observable of the direction of the relation.

When testing the relation between reputation, CSR report level, region and industry, the relation

between the qualitative variables in common on the reputation, is taken into consideration. For the

region variable first the relation between region in common and reputation is tested. The outcomes

show whether region has an influence on reputation. Thereafter is tested if the different categories of

the qualitative variables have a connection with the reputation. This implies for the region variable,

whether a specific region has a relation with the reputation.

In table 8 the outcomes are shown. The provided data of the test are the p-values. From the p-value a

relation can be observed between the reputation and the variable. An actual relation is observed when

the p-value reaches the significant value of 10%. The p-values marked with a * shows a connection

between the two variables. Also in this table a distinction is made in the levels of significance.

68 | P a g e

Table 8: p-value of the outcomes of the One Way Anova test.

2005 2006 2007 2008 2009CSR Report Level

Common 0,211 0,680 0,065* 0,969 0,714A+ 0,568 0,084* 0,063* 0,562 0,252

A - 0,760 0,174 0,979 0,285B+ 0,133 0,837 0,948 0,659 0,897

B 0,754 0,308 0,393 0,892 0,983C+ 0,066* 0,504 0,687 0,616 0,872

C - 0,631 0,086* 0,981 0,917U 0,185 0,159 0,019** 0,307 0,129IA 0,289 0,716 - - -CI 0,943 0,912 - - -

RegionCommon 0,005** 0,000*** 0,630 0,001*** 0,000***

Africa 0,639 0,807 0,674 0,875 -Asia 0,203 0,002** 0,923 0,000*** 0,000***

Europe 0,013** 0,013** 0,092* 0,301 0,333Latin America 0,633 0,904 0,747 0,598 0,303

Northern America 0,000*** 0,000*** 0,167 0,001*** 0,000***Oceania - - - - -

IndustryCommon 0,158 0,359 0,013** 0,320 0,017**Oil & Gas 0,436 0,426 0,186 0,013** 0,009***

Basic Materials 0,186 0,130 0,008*** 0,488 0,861Industrials 0,620 0,080* 0,410 0,492 0,805

Consumer Goods 0,107 0,316 0,569 0,381 0,127Health Care 0,809 0,728 0,969 0,463 0,307

Consumer Services 0,816 0,887 0,752 0,872 0,088*Telecommunications 0,336 0,858 0,017** 0,963 0,851

Utilities 0,508 0,930 0,505 0,646 0,190Financials 0,047** 0,360 0,858 0,169 0,064*

Technology 0,037** 0,426 0,010** 0,329 0,057*

*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1

69 | P a g e

Observed from the outcomes presented in table 8, evidence is found for a relation between CSR report

level and the reputation index of 2007. This is in conformity with the agency theory, legitimacy theory

and the stakeholder theory. The level of the CSR report has an influence on the reputation. When the

CSR report is conform specific guidelines the stakeholders are provided to more reliable information.

This decreases the agency problem and the information asymmetry, which is valued by the stakeholders

in an increase of the reputation. The relation between CSR report level and reputation is also caused by

the legitimacy theory. Due to a disclosure of a CSR report, the company achieves legitimacy of the

public, this results in an improvement of reputation. The relation between CSR report level and

reputation is in conformity with the stakeholder theory. The environmental and social related

stakeholders of a company prefer a high CSR quality report. Management will react on this demand and

an increase of the company’s reputation follows.

From this table a connection between some of the specific CSR reporting levels and the reputation is

observable. The A+ level has in 2006 and 2007 a significant relation with the reputation. In 2005 the C+

level also has a relation with the reputation. Besides the A+ level in 2007, the C and U level also have a

significant relation on the reputation.

With the One Way Anova test is investigated that a relation between region and reputation is

observable in the years 2005, 2006, 2008 and 2009. This confirms different circumstances are

influencing the reputation. Circumstances are different among certain regions, and have an influence on

the reputation, when the relation of the different regions on the reputation is taken into account. The

outcomes show Asia has a significant connection in 2006, 2008 and 2009. For Europe a relation is

investigated in the years from 2005 till 2007. The relation between Northern America and the reputation

is significant for all years except 2007. For Oceania too few data was available to examine the relation

with reputation.

A relation between industry and reputation is observable in 2007 and 2009. This implies the difference

in industry has a relation with the reputation. The oil & gas industry has a relation with the reputation in

2008 and 2009. The basic materials and the telecommunications industries both have just in 2007 a

relation with reputation. Industrials only have a connection with reputation in 2006. Consumer services

have a relation with reputation in the year 2009. A relation between the financial industry and

70 | P a g e

reputation is observable in the years 2005 and 2009. For technology the relation with the reputation is

investigated in the years 2005, 2007 and 2009. The industries consumer goods, health care and utilities

have no relation with reputation.

6.2.2 Regression

The regression results are based on the developed methodology of chapter 5. The regression analysis is

provided by testing the basic and extensive model. In the extensive model all control variables are

included. In the basic model only the CSR report level is used as independent variable to predict

reputation. To test the sub hypotheses, the represented control variables should be implemented in the

basic model. By including the control variables in the basic model the influence of the control variables

on the relationship between CSR report level and reputation is tested. In the extensive model all control

variables are included, in this model is tested if all variables have an impact. If in the basic model an

influence of the control variable on the relationship is proved, this relation is also proved in de extensive

model.

First, the outcomes of method 1 are described. This method takes the general influence of the

qualitative variables into consideration. The second method takes the influence of the different

categories inside the qualitative variables into considerations. The second method is discussed after the

first method.

Method 1

The first regression results are shown in table 9. In this regression the influences of variables on the

reputation is shown. For the qualitative variables: CSR report level, region and industry in this

regression, no separation has been made on the different categories inside the qualitative variables. This

implies that only the influence of CSR report level, region and industry are tested. In this developed

regression no statements can be made on the influence of one specific CSR report level, region or

industry.

71 | P a g e

Table 9: Regression results (dependent variable: reputation)

2005 2006 2007 2008 2009Constant 3,114** 4,332*** 4,020*** 3,392*** 3,628***

CSR Report Level 0,018 0,037 0,058 0,040 -0,029Size 0,556** 0,215 0,397** 0,357** 0,389**

Fin. Performances 0,051** 0,024 0,015 0,047*** 0,037***SG&A to Sales -0,181 -0,331 -0,356 -0,160 -0,176

Region 0,167 0,324*** 0,160* 0,298*** 0,235***Industry 0,022 0,021 0,070 0,000 0,021

Anova 0,012 0,001 0,012 0,000 0,000

R squared 0,245 0,256 0,137 0,359 0,226VIF 1,211 1,254 1,169 1,133 1,172

*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1

To examine if a variable has influence on the reputation, the p-value should be less than the significant

value of 10%. When the beta (coefficient) has a negative value, the variable has a negative value on the

reputation and a positive value of beta investigates a positive influence. The anova value of each year is

below the significant level. This proves the regression model measures the dependent variable in a good

way. The anova value is a score for the entire model, not for the prediction value of one variable. The R

squared value represents the variance in the reputation index which can be explained by the selected

variables. In this model the value varies from 0,137 (2007) till 0,359 (2008). The R squared values are

relatively high, but there is space for improve improvement, there might be other variables (which are

not included in the model) which also have influence on the reputation index. In the regression results

of all years no collinearity in the data exists. The VIF score is between 0,2 and 10 this implies the

variables which are included have no correlation with each other.

Resulting from this model, CSR reporting level has no influences on reputation. The p-values of the years

2005 up till and including 2009 are higher than the significant level of 10%. It is proved that the beta of

the CSR reporting level has no predictive value on the reputation. When the basic model is tested for

72 | P a g e

2009, a significant positive influence of the CSR quality level on the reputation is observed. The R

squared is very low in this model, therefore can be assumed that other variables should be included to

provide a better prediction of the reputation. The positive influence of CSR reporting level on the

reputation for 2009 is in conformity with the agency theory, information asymmetry, legitimacy theory

and stakeholder theory.

For all years, except 2006, the size coefficient has a significant influence on the reputation. And when

the size variable is included in the basic model an influence on the reputation is proven in the years 2005

and 2006. In the model, where size is included in the basic model, the R squared increases, which

implies a better prediction of the reputation index. These results prove size has an influence on the

relationship between the CSR report level and the reputation. Larger companies are dealing with a more

public attention. A CSR report can be useful for satisfying the public of the large company. The CSR

report provides more transparency, and therefore the information asymmetry and the agency problem

reduce. The public appreciate this reduction, which results in an improvement of the reputation. This is

conforming the legitimacy and stakeholder theory. In this model the degree of the size coefficient varies

for 0,215 up till 0,556.

In the years 2005, 2008 and 2009 a significant influence of the financial performances is observable. This

influence is positive and very small. When the financial performance variable is included in the basic

model, a positive influence is observable too. The R squared increases as well, which indicates financial

performance has a positive influence on the relation between CSR report level and reputation. This

confirms the expectation that better financial performing companies have more financial resources

available to disclose a well qualified CSR report. Also better financial performers having more influences

on the society. The bigger influence on the society of better financial performers results in an

improvement of reputation.

From this regression is proven that general selling & administrative expenses to sales have no influences

on reputation. When this control variable is included in the basic model, no influence is obtained. The

general selling & administrative expenses to sales have no impact on the relationship between CSR

reporting level and reputation.

From the outcomes of method 1, is proven that regions have an influence on reputation, except for

2005 this influence is observable. When regions are included in the basic model an influence on the

relationship between CSR report level and reputation is observable. For the year 2007 this influence on

73 | P a g e

the relationship is not obtained. The influences of the region is positive and of middle degree. Overall

the findings proved an influence of region on the relation between CSR report level and reputation.

In table 9, no influence of industry on the reputation is observable, for all years. When the basic model is

extended with the industry control variable no influences is proven. There is no influence of the industry

on the relation between CSR report level and the reputation.

Method 2

Above method 1 is described, in this method the general influences of the qualitative variables are

tested. But with method 1 the influences of the specific categories (which are inside the qualitative

variable) are not observable, therefore method 2 should be used. In this model dummy variables are

included. The dummy variables measure the difference in influence with the reference variable. The

differences in influences of the dummy variables are observed from the p-value. The degree of different

influences is observable from the coefficient. The IA level is the reference variable for the CSR report

levels, for the regions Europe is the reference variable and for the industry the consumer goods is the

reference variable.

On the next page table 10 is displayed, in this table the regression results over 2005 up till and including

2009 are shown. In this method the single variables are included in the basic model. When including one

variable in the basic model the influence on the relationship of this variable is directly tested. The

outcomes of the influence of the variable, observed from the basic model, does not differ from the

influence of the variable observed from the model where all variables are included.

74 | P a g e

Table 10: Regression results (Categorical variables are included)

2005 2006 2007 2008 2009Constant 2,139 4,448*** 4,875*** 5,039*** 3,130***CSR Report Level

A+ 0,396 -0,609 0,375 -0,171 -0,287A - -0,158 0,864 0,177 -0,049

B+ -0,574 -0,521 0,479 -0,236 -0,080B -1,335 -1,085* 0,240 -0,107 -0,019

C+ 1,793* -0,189 -0,010 -0,179 -0,510C - -1,361* -0,172 -0,015 0,042U 0,447 -0,353 0,675 0,122 -0,210IA EX EX - - -CI 0,032 -0,611 - - -

Size 0,635** 0,300 0,220 0,121 0,475**Financial Performances 0,090*** 0,041 0,013 0,049*** 0,040**SG&A to sales 0,266 0,023 -0,157 -0,027 0,204Region

Africa 1,015 0,734 - - -Asia -0,018 -0,169 -0,048 0,085 -0,465*

Europe EX EX EX EX EXLatin America 0,658 0,455 1,101* 0,765 0,708*

Northern America 0,602* 0,895*** 0,109 0,158 0,434**Oceania - -1,028 -0,168 - -1,298

IndustryOil & Gas -0,384 0,298 0,313 0,720* 0,735**

Basic Materials 0,843 0,116 -0,468 0,214 0,481*Industrials 0,684 1,000** 0,340 0,160 0,320

Consumer Goods EX EX EX EX EXHealth Care -0,782 -0,064 0,175 0,007 -0,091

Consumer Services 0,255 0,207 0,374 0,164 -0,215Telecommunications 1,382 1,058 -0,938* 0,404 0,037

Utilities 0,431 0,064 0,734 0,202 1,133*Financials -0,044 0,606 0,383 0,126 -0,003

Technology 0,085 0,294 0,728** 0,229 0,689***

Anova 0,121 0,012 0,024 0,002 0,000R squared 0,456 0,491 0,308 0,289 0,381

VIF 1,581 1,603 4,012 1,322 1,401

75 | P a g e

*** Significant at p < 0,01** Significant at p < 0,05* Significant at p < 0,1

When focusing on the anova, all years except 2005, provide a reliable model. The value of anova for

2005 is above the used significant level of 10%, which implies the designed model for 2005 is not an

accurate prediction of reputation. The R squared is relatively high for all years, this implies that when

there is a change in the dependent variables, the change is observable in the reputation. The R squares

of this method are higher compared to the first method. The included categorical variables in the second

method have an improved prediction on the reputation index. Still there is space for other variables to

increase the predictability of reputation index. It is remarkable that the VIF score is higher in the second

model. The collinearity of the second model is higher, this implies the results are less reliable compared

to the first model. In 2007 there is much collinearity between variables, this is caused by the categorical

variables of CSR report level.

Following the results of table 10, the different CSR report levels have less different influences on

reputation. Only in the year 2005 and 2006 difference in influences are observable. There is proven that

C+ level in 2005 and the B and C level in 2006 have different influences on the reputation. The C+ level

has, in 2005, a significant positive influences and the B and C level have a significant negative influence,

compared with the IA level. The degree of different influences is pretty high, the C+ level in 2005

improved the reputation index with 1,793 in comparison with level IA. Besides the different influences of

C+ in 2005, B and C level in 2006, there is no proof that the different CSR report levels have a different

influence on reputation.

In the results evidence was found that size has an influence on reputation. In the results of 2005 and

2009 a p-value less than 0,01 is observable. The size of a company has a positive influence on the

reputation. When the size control variable is included in the basic model, the R squared improves. But

when the size variable is included only in the years 2005 and 2009 a significant influence is observable.

Also only in the years 2005 and 2009 the size has a significant influence. In these years the CSR report

levels B+, U and C+ have a significant different influence on the reputation index, compared with the IA

level.

In the years 2005, 2008 and 2009 there is a significant influence of the financial performances on the

reputation index observable. For these years is proven that a higher return on assets (with an amount of

one) increased the reputation index with 0,09;0,049 or 0,04. When the financial performances variable

76 | P a g e

is included in the basic model, a significant influence for the years 2005, 2008 and 2009 on the

reputation index is proven. The R squared increases in the basic model when the variable of the financial

performance is included. Including the financial performances variable in the basic model has also

results in a different influence of the B+ and U level in comparison with IA level.

For the general selling & administrative expenses to sales, no evidence for a significant influence on the

reputation was found. When including this variable in the basic model, no influence was found. This

implies that the general selling & administrative expenses to sales, have no influence on reputation and

no influence on the relationship between CSR reporting and the reputation.

Following the results of table 10, it is proven that regions have a significant influence on the reputation.

For 2005, 2006 and 2009 it is proven that companies from Northern America have a positive different

reputation than companies from Europe. In 2007 and 2009 Latin America has a significant different

influence on reputation compared to Europe. The reputation index is higher in 2007 and 2009 for

companies from Latin America compared to companies from Europe. When Asia is taken as reference

category (not showed in table) it is proven that Europe has a significant different positive influence on

reputation in 2009. When the different regions are included in the basic model, evidence is found that

regions have an influence on the relationship between CSR report level and reputation. These results

prove differences exist in the influence of regions. Northern America, Latin America, Asia and Europe

have different influences on the reputation. When looking at specific regions, evidence is found that the

countries USA, Brazil, Finland, Germany, Switzerland and the United Kingdom have a significant different

influence.

When focusing on the results of the industry categories evidence is found differences exist in the

influence of industries on the reputation index. The differences in influence are not observable in 2005.

From 2006 up till and including 2009 the different influences among industries are observable, but few

industries differ significantly from the consumer goods. In 2006 only the industry type industrials, has a

significant different influence on the reputation index. In 2007 telecommunications and technology has

a significant different influence on the reputation index, compared to consumer goods. In comparison

with consumer goods telecommunications has a negative influence on the reputation index and

technology industry improves the reputation index. Oil & Gas industry has, in 2008, a significant

different influence on the reputation index compared to consumer goods. Companies in the oil & gas

industry in 2008 have higher reputation index than companies in the consumer goods industry. In 2009

companies operating in the oil & gas, basic materials, utilities and technology industry are facing a

77 | P a g e

significant different influence on reputation index than companies operating in the consumer goods.

These companies operating in the oil & gas, basic material, utilities and technology have a higher

reputation index than the consumer goods. When only the industry variable is included in the basic

model, also less evidence is found that different regions have a different influence on the reputation

index. Also the R squared improves little, when regions are included in the basic model. This implies that

the industry has less influence on the relationship between CSR quality and reputation.

78 | P a g e

Chapter 7 ConclusionIn this chapter the outcomes of the research are summarized. The first paragraph discusses the main

findings of the research. Thereafter the implications for the scientific world, companies and society are

discussed. The limitations of this paper and opportunities of further research are discussed in the third

paragraph.

7.1 Discussion

In this paper the relationship between CSR reporting and reputation is investigated. In prior research

different impacts of CSR already have been researched. The financial impacts are already well

established, but there is still room available to investigate the impact of CSR on society and

stakeholders. Reputation is a measurement to investigate the effect of CSR on society. The society is

affected after a CSR report. With this report society receives more CSR information about the company.

As a result of the CSR report more transparency is provided. When the CSR report is of high quality,

stakeholders are provided with more reliable information. It is to be expected that society will value a

high quality of CSR reporting. The agency theory explains that the information asymmetry is reduced

after the CSR report. Stakeholders will value this, because stakeholders are provided with more

transparency. The legitimacy theory and stakeholder theory explain that companies act in favor of

stakeholders’ interest to obtain legitimacy. Stakeholders are demanding high quality CSR reports, which

increase transparency, thereby providing stakeholders with more reliable information. The willingness of

management to provide a high quality CSR report is dependent on the power among different

stakeholders. This implies the expectation that CSR reporting quality has a positive influence on

reputation.

Prior research of Clarkson et al. (2010) found evidence about the positive influence of CSR reporting on

public sentiment. In this study the five most polluting industries from the United States are included. In

the study of Clarkson et al. (2010) the GRI framework is used as proxy to investigate CSR reporting. The

Janis Fadner coefficient is used as proxy for the reputation. This is not the most accurate measurement

for reputation, the coefficient assumes that reputation is equal for all companies when the same

79 | P a g e

number of positive and negative environmental articles is published. Also it is interesting to investigate

the impact of CSR reporting quality on reputation for all types of industries.

In this paper CSR reporting quality is measured with the CSR report level provided by the GRI Report List.

From this list the application levels of CSR reports are observable, the report levels are A+, A, B+, B, C+,

C, U, IA and CI. These levels contain the degree of conformity with CSR reporting guidelines. The

reputation is measured with the reputation index, this index contains nine different components. The

index is composed by directors, security analysts and executives of international companies. Combining

the two databases resulted for the period 2005 till 2009 in 85, 106, 138, 167 and 175 data points

respectively. The tested relation of CSR reporting quality and reputation is also dependent on other

variables. These variables are size, financial performances, expenses to selling general and

administration, region of company and the industry where the company operates.

The impact of CSR report quality on reputation is tested with the correlation and the regression

Correlation and regression makes use of different variables, the dependent variable is reputation. The

independent variables are CSR reporting level, financial performance, size, percentage of selling general

and administrative expenses to sales, region of company’s headquarter and industry where the

company operates. Correlation measures the relation between reputation and an independent variable.

With the regression the influence of more independent variables are measured on the reputation. The

results show that there is no impact of CSR report quality on reputation. In this paper no evidence is

found that a relation exists between CSR reporting quality and reputation. Public does not observe the

quality of a CSR report. The CSR reporting quality is not incorporated in the reputation index. Evidence is

found about the influence of size on the relation between CSR reporting quality and reputation. The

found evidence of the size influence is small, it is not observed for all years. Financial performances do

have an influence on the impact of CSR reporting quality on reputation. The reputation index is

dependent on financial performance. When a relation between CSR reporting quality and reputation

exist, financial performances increase the relationship. The percentage of general selling and

administrative expenses to sales is a measurement to observe the degree of service expenses of sales.

There is no evidence found, that general selling and administrative expenses to sales have an influence

on the relation between CSR reporting quality and reputation. However, regions in which the

headquarter of the company is seated do have an influence on the reputation index. A difference exists

in the reputation index of companies from different regions. Evidence is found that Northern America

has a significant different influence than Europe on the reputation index. Asia and Latin America also

80 | P a g e

have a significant different influence than Europe on the reputation index. Asia has a negative influence,

Northern America and Latin America have positive influences. The results of regions implies that

difference between region exist on the relation between CSR reporting quality and reputation. No

significant different influences among industries are observable on the reputation index. Industries have

no impact on the relation between CSR reporting quality and reputation.

7.2 Implications

The findings of this paper contribute to the scientific world, as well as to companies and society. No

relationship between CSR reporting quality and reputation is observed in this paper, but this outcome

sheds new lights on the study of Clarkson et al. (2010).In the study of Clarkson et al. (2010) a relation is

found between CSR reporting and public sentiment. But from this paper contradictory evidence is found,

because no relationship is found between CSR reporting quality and reputation. Former studies that

investigate the relation between CSR reporting and reputation, did not incorporate the impact of

financial performances, percentage of general selling and administrative expenses to sales, regions or

industries. The found evidence that suggests an impact of financial performances and regions on the

relationship contributes to the scientific world.

In this paper it is proved that CSR reporting has no impact on reputation, but when stakeholders are

putting more attention on CSR reporting, perhaps other results will be observed. Until now stakeholders

do not incorporate CSR reporting in their impression of companies. When more attention is given to

CSR, stakeholders will become more familiar with CSR reporting, which may result in an impact on the

reputation. CSR reporting provides important company information, when a CSR report is of high quality

more transparency is provided. This paper provides contribution to the society because there is proved

that stakeholders should put more attention to CSR reporting. CSR reports provides transparency into

the company’s information, society can benefit from this transparency.

The findings of this paper provide benefits for companies, because it is investigated if certain variables

have an influence on the reputation index. It is proven that size, financial performances and regions

have an impact on the reputation. Awareness of companies is provided on the influence of size, financial

performance and region on reputation.

81 | P a g e

7.3 Limitations and further research

The data of the reputation is based on the reputation index that is provided by the Fortune 500. This

reputation index is compiled by directors, security analysts and executives of international companies,

which is not an accurate representation of total society and all stakeholder sentiment. It is difficult to

find a database that represents the reputation index of companies that is representative of the

impression of total society. But maybe in the future ways are found, to set a proxy for reputation which

contains total society’s sentiment. For future research it is defiantly to find a proxy for reputation, which

finds another public than directors, security analysts and executives. Interesting is to compile the

reputation on judgments of environmental and social foundations. A foundation as Greenpeace has

much knowledge about environmental related performances of companies. An idea is to investigate if

the judgment of, for instance Greenpeace is affected by CSR reporting. It is also interesting to base the

reputation on costumers. In the researches of Brown et al. (1997) and Ittner et al. (1998) the reputation

is already based on customer satisfaction, but customer satisfaction is compiled of the evaluation of

single products. The company is more than its products and also companies exist that produce more

than one product. An opportunity for future research is to compile reputation on customers’ satisfaction

on company level and not on product level.

The application levels of 2005 and 2006 are based on the G2 and G3 guidelines. The applications levels

of 2007, 2008 and 2009 are based on the G3 guidelines. This means that two different measurements of

CSR report level are used in this paper. The comparability of results of all years decrease, when in 2005

and 2006 different guidelines are the basis of application level. But when the application level that are

conform the G2 guidelines are excluded, the sample becomes very small.

Another limitation is that in the total sample contains only a few companies that operate in Africa and

Oceania. So it is not possible to observe the influence of these continents on the relation between CSR

reporting quality and the reputation. This implies that for future research the sample should be

increased with companies from Africa and Oceania.

This study focuses on CSR reporting. It is also interesting to focus on the CSR performances and their

influence on the content of a CSR report. In this paper evidence is found that directors, security analysts

and executives do not observe the CSR report level. But maybe they do observe CSR performances.

82 | P a g e

References Karloff, G., 1970, The market for ‘lemons’ quality uncertainty and the market mechanism, Quarterly

Journal of Economics, 90, p. 629-650

Akhtaruddin, M., Haron, H., 2010, Board ownership, audit committees effectiveness and corporate

voluntary disclosures, Asian Review of Accounting, 18, p. 245-259

Brown, T.J., Dacin, P.A., 1997. The company and the product: Corporate associations and

consumer product responses. Journal of Marketing 61: 68-84

Chen, C.X., 2009. Who really matters? Revenue implications of stakeholder satisfaction in a

health insurance company. The Accounting Review 84(6): 1781-1804

Cho, C.H., Patten, D.M., 2007, The role of environmental disclosures as tools of legitimacy: A research

note, Accounting, Organizations and Society, 32, p. 639-647

Clarkson, P.M., Richardson, G.D., Li, Y., 2004, The market valuation of environmental capital

expenditures by pulp and paper companies, The Accounting Review, 04/2004, p. 3289-3353

Clarkson, P.M., Fang, X.H., Li, Y., Richardson, G., 2010, The relevance of environmental disclosures for

investors and other stakeholder groups: are such disclosures incrementally informative?, Working

Paper, University of Queensland

Crane, A., Mcwilliams, A., Matten, D., Moon, J., Siegel, D., 2008, oxford handbook of corporate social

responsibility, Oxford University Press, Oxford

Dawkins. J., Stewart L., 2003, CSR in stakeholder expectations: and their implication for company

strategy, Journal of Business Ethics, 44, p. 185

Dhaliwal, D., Radhakrishnan. S., Tsang, A., Yang, Y.G., May 2010. Nonfinancial disclosure and analyst

forecast accuracy: International evidence on corporate social responsibility (CSR) disclosure, working

paper, University of Arizona and The Chinese University of Hong Kong

Dhaliwal, D., Li, O.Z., Tsang, A., Yang, G.Y., 2010. Voluntary nonfinancial disclosure and

the cost of equity capital: The case of corporate social responsibility reporting. Working

paper, Chinese University of Hong Kong.

Douglas, A., Doris, J., Johnson, B., 2004, Corporate Social Reporting in Irish Financial

Institutions, Total Quality Management Magazine 16(6), 387-395.

Dowling, J., Pfeffer, J., 1975, Organizational Legitimacy: Social Values and Organizational Behavior,

The Pacific Sociological Review, 18, P. 122-136

83 | P a g e

Du. D., 2003, Stock price reactions to earnings announcements: evidence from Chinese markets,

Review of Financial Economics, 12, p. 271-286

Elder, R.J., Beasley, M.S., Arens, A.A., 2010, Auditing and Assurance Services, an integrated

approach, 13th edition, Pearson, New Jersey

Formbrund, C., Shanley, M., 1990, What’s in a name? Reputation building and corporate strategy,

academy of Management Journal, 33, p. 233-258

Freeman, R.E., Reed, D.L., 1983, Stockholders and stakeholders: a new perspective on corporate

governance, Californian Management Review, 25, p. 88-106

Healy, P.M., Hutton, A., Palepu K.G., 1999, Stock performance and intermediation changes

surrounding sustained increases in disclosure, Contemporary Accounting Research, 16, p. 485-520

Healy, P.M., Palepu, K.G., 2000, Information asymmetry, corporate disclosure, and the capital

markets: A review of the empirical disclosure literature, Journal of Accounting and Economics, 31, p.

405-440

Health Partners, 02/2004, Fitness; Active Physically fit employees have better work performance,

Biotech Week ISSN, 1535-2757, p. 186

Hope, O. 2003. Disclosure practices, enforcement of accounting standards, and analysts’ forecast

accuracy: An international study. Journal of Accounting Research 41(May): 235-272.

Huang, F.H., Kung, C.Li., 2010, Drivers of environmental disclosure and stakeholder expectation;

evidence from Taiwan, Journal of Business Ethics, 96, p. 435-451

Ittner, C., Larcker, D., 1998, Are non-financial measures leading indicators of financial performance?

An analysis of customer satisfaction, Journal of Accounting Research, 36 (supplement), p. 1-35

Jensen, M.C., Meckling, M.H., 1976, Theory of the firm: managerial behavior, agency costs and

ownership structure, journal of financial economics, 3, p. 305-360 Kakabadse, N. K., Kakabadse, A. P., Lee-Davies, L., 2006, CSR leaders road-map, Corporate

Governance, 9, p. 52

Kavitha, W., Anita, P., 2011, Disclosures About CSR Practices: A Literature Review, The IUP Journal of

Corporate Governance X(1): 45-55

Kothari, S.P., 2001, Capital markets research in accounting, Journal of Accounting and Economics, 31,

p. 105-231

Lang, M., Lundholm, R., 1993, Cross-sectional determinants of analysts ratings of corporate

disclosures, Journal of Accounting Research, 31, p. 246-271

Lang, M. Lundholm, R., 1996. Corporate disclosure policy and analyst behavior. The

84 | P a g e

Accounting Review 71, p. 467-493.

Lang, M., Lundholm, R., 2000, Voluntary disclosure and equity offerings: Reducing information

asymmetry or hyping the stock?, Contemporary accounting research, 17, p. 623

Lev, B., Petrovits, C., Radhakrishnan, S., 2010. Is doing good good for you? Yes, charitable

contributions enhance revenue growth. Strategic Management Journal 31(2): 182-200.

Lightstone, K., Driscoll, C., 2008, Disclosing elements of disclosure: A test of legitimacy theory and

company ethics, Canadian Journal of Administrative Sciences, 25, p. 7-21

Liu, J., Taylor, D., 2008, Legitimacy and corporate governance determinants of executives’

remuneration disclosures, Corporate Governance, 8, p. 59-72

Louhichi, W., 2008, Adjustment of stock prices to earnings announcements: evidence from Euronext

Paris, Review of Accounting and Finance, 7, p. 102-115

Margolis, J.D., Walsh, J.P., 2003, Misery loves companies: Rethinking social initiatives by business,

Administrative Science Quarterly, 48, p. 268-305

Matsumura, E.M., Prakash, R., and Vera-Munoz, S.C., 2010 Carbon Emissions and Firm Value,

Working paper, University of Wisconsin-Madison

Orlitzky, M., Schmidt, F.L., Rynes, S.L., 2003, Corporate social and financial performance: a meta-

analysis, Organization Studies, 24 p. 403-441

Patten, D., 2002, The relation between environmental performance and environmental disclosure:

Research note, Accounting, Organization, and Society, 27, p. 763-773

Plumlee, M., Brown, D., Marshall, S., 2009, Voluntary environmental disclosure quality and firm

value: the role of venue and industry type. Working paper, University of Utah

Porter, M.E., Kramer, M.R., 2006, Strategy and society; the link between competitive advantage and

corporate social responsibility, Harvard Business Review, 85

Quaak. L., Aalbers, T., Goedee. J., 2006, Transparency of corporate social responsibility in Dutch

breweries, Journal of Business Ethics, 76, p. 293-308

Richardson, A., Welker, M., 2001. Social disclosure, financial disclosure and the cost of equity capital,

Accounting, Organizations and Society. 26 (7/8), 597-615

Sutantoputra, A.W., 2009, Social Disclosures Rating System for assessing firms’, CSR Reports,

Corporate Communications: An International Journal 14(1): 34-48

Ullman, A.A., 1985, Data in search of a theory: a critical examination of the relationships among

social performance, social disclosure and economic performance of US firms, Academy of

Management Review, 10, p. 540-557

85 | P a g e

Watts, R., Zimmerman, J., 1983, Agency problems, auditing and the theory of the firm: some

evidence, Journal of Law and Economics, 26, p. 613-634

Wood, D.J., 2010, Measuring Corporate Social Performance: A Review, International journal of

Management Reviews, 12, p. 50-84

Internet Resources

http://www.globalreporting.org/AboutGRI/ accessed on 15 March 2011

http://www.globalreporting.org/NR/rdonlyres/D2BC0DF8-FF2C-4BAB-B2B4-27DA868C2A5F/5683/

G3_Guidelines_English.pdf accessed on 15 March 2011

http://www.globalreporting.org/ReportServices/GRIReportsList/ accessed on 1 April 2011

http://money.cnn.com/magazines/fortune/mostadmired/2011/full_list/ accessed on 1 April 2011

http://www.rabobank.nl/particulieren/servicemenu/sponsoring/sponsorfilosofie/ accessed on 14

March 2011

Richtlijnen voor duurzaamheidsverslaggeving, 2000-2006 GRI, version 3.0 accessed on 15 March

2011

86 | P a g e

Appendix A: Companies included in sample

R.L. = CSR Report LevelR.I. = Reputation Index

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. 3M Oceania Industrials C+ 7,43 C+ 6,96 C+ 6,87ABB Europe Industrials IA 5,50 U 5,65 U 6,62 B+ 5,85 B 6,18Abbott Northern America Health Care CI 6,66 CI 6,75 U 6,55 U 6,78 U 6,68ABN AMRO Holding Europe Financials IA 5,56 A+ 4,97Accenture Northern America Industrials C 7,35Advanced Micro Devices Europe Technology B 4,43Aegon CI 5,36 B 5,31 B 5,26 U 4,69Aeon Asia Consumer services U 5,34 U 4,78Aisin Seiki Asia Consumer goods U 5,19Akzo Nobel Europe Basic Materials A+ 4,57 C+ 5,54Alcan Northern America Basic Materials U 7,41 U 7,94 U 6,29Alcatel Europe Technology CI 5,60Alcoa Northern America Basic Materials U 6,78 U 6,69 U 7,05All Nipon Airways (ANA) Europe Consumer services B+ 4,85Allianz Europe Financials IA 5,84 B 5,85 B 6,04 B 6,20 B 5,70Allstate Northern America Financials U 5,91American Electric Power Northern America Utilities B 5,85 B 6,03 U 7,85AMR Northern America Consumer services C 5,20 C 4,57 C 4,06Anglo American Europe Basic Materials CI 5,10 A+ 5,04 A+ 5,95Anheuser-Busch Northern America Consumer goods U 8,00 U 8,17 B 7,97

87 | P a g e

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Apple Northern America Technology U 7,40 U 7,07Applied Materials Northern America Technology U 6,77 C 6,68Arcelor Mittal Europe Basic Materials U 7,74 U 6,89 U 6,78Asahi Breweries Asia Consumer goods U 4,18 U 4,20Asahi Kasei Asia Basic Materials U 3,65 U 5,10Ashland Northern America Basic Materials A+ 4,47Assicurazioni Generali Europe Financials B 4,49 B 4,89AstraZenecu Europe Health Care B+ 6,18AT&T inc. Northern America Telecommunications C 7,05 C 6,63Autodesk Northern America Technology C 6,63Avon Products Northern America Consumer Goods C 5,82Baker Hughes Company Northern America Oil & Gas IA 6,62 A+ 6,61 A+ 6,01Bank of America Northern America Financials U 7,59 B 6,69Barclays Europe Financials CI 5,87BASF Europe Basic Materials IA 7,42 A+ 6,93 A+ 6,89 A+ 7,06 A+ 7,04Baxter International Northern America Health Care B 6,74 B+ 6,71 B+ 6,78Bayer Europe Basic Materials B+ 6,53 A+ 5,70 A+ 6,29 A+ 5,53 A+ 6,87Best Buy Northern America Consumer services U 7,20 U 6,63 U 6,63BG Group Europe Oil & Gas U 6,05BHP Billiton Oceania Basic Materials A+ 6,07 A+ 6,39 A+ 5,90 A+ 6,92BMW Europe Consumer Goods B+ 7,38 B+ 7,88 A 6,50BNP Paribas Europe Financials CI 5,77 U 5,96 U 4,89 U 5,03Bombardier Northern America Industrials B 5,47 U 5,91BP Europe Oil & Gas C+ 8,17 C+ 7,32 A+ 6,60 A+ 6,84 A+ 6,63Ball Northern America Industrials B 6,50Becton Dickinson Northern America Health Care U 6,90Black & Decker Northern America Consumer Goods U 5,91

88 | P a g e

Boise Northern America Basic Materials IA 5,29 U 3,86 2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Bridgestone Asia Consumer Goods C 5,34British American Tobacco Europe Consumer Goods A+ 7,71 A+ 7,18Bristol-Myers Squibb Northern America Health Care B+ 5,23 B+ 4,98 B+ 5,44 B+ 5,40Brown-Forman Corporation Northern America Consumer Goods C 4,14BT Group Europe Telecommunications IA 5,90 IA 6,59 A+ 6,47 A+ 6,46 A+ 5,76Bunge Latin America Consumer Goods CI 7,14 A+ 7,14 A+ 7,08 A+ 7,00 A+ 6,55Cadbury Schweppes Europe Consumer Goods CI 5,65Canon Asia Technology CI 6,88 U 6,56 U 6,05 U 6,12Carrefour Europe Consumer Services IA 6,91 B+ 6,82 U 7,09 B+ 6,35 B+ 5,65Chevron Northern America Oil & Gas CI 7,92 U 7,80 U 7,62 U 7,02China Mobile Communications Asia Telecommunications U 5,06 B+ 5,86 B+ 5,41 B+ 5,25Chubb Northern America Financials U 7,09Cisco Systems Northern America Financials U 7,29 U 7,73 U 7,82 U 7,36 U 7,83Citi Group Northern America Financials CI 7,40 U 6,87 B 5,54 B 4,54 B 3,41Coca-Cola Northern America Consumer Goods B 6,09 B 6,09 C 6,90 B 6,84 B 6,98Coca - Cola Enterprises Northern America Consumer Goods B 5,88 B 5,02 B 5,98Colgate-Palmolive Northern America Consumer Goods U 6,81 U 6,76ConAgra Foods Northern America Consumer Goods B 5,36Conoco Philips Northern America Oil & Gas U 6,80Constellation Energy Northern America Utilities U 4,46Continental Northern America Consumer Goods U 7,80Credit Suisse Europe Financials CI 5,53 U 5,85 U 6,54 A 6,53 A 6,63Cummins Northern America Industrials U 6,94 U 6,49 C 6,25Daimler Chrysler Europe Consumer Goods CI 5,94Darden Restaurants Northern America Consumer services U 6,21Dean Foods Northern America Consumer Goods U 4,71 U 4,71

89 | P a g e

2005 2006 2007 2008 2009

Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I.

Delhaize GroupEurope Consumer Services B+ 6,13

DellNorthern America Technology CI 6,12 C 6,03 B 5,58 B 5,62 B 6,14

Delta AirlinesNorthern America Consumer Services C 6,31

DensoAsia Consumer Goods IA 6,38 U 6,26 U 5,62

Deutsche BankEurope Financials IA 4,69 A 5,10 A 6,03 A 5,59

Deutsche Post (DHL)Europe Industrials B+ 5,50 B+ 5,41 B+ 5,17

Deutsche TelekomEurope Telecommunications CI 5,97 A+ 5,13 A+ 5,60 A+ 5,28

Dexia GroupEurope Financials U 4,75

DiageoEurope Consumer Goods A+ 4,66 A+ 5,82 A 5,40

Dow ChemicalNorthern America Basic Materials A+ 6,43 A+ 5,64 A+ 6,11

DuPontNorthern America Industrials U 6,91 B 7,03

Duke EnergyNorthern America Utilities B 7,16 B 6,95 B 6,87 B 5,88 B 6,11

E.ONEurope Utilities IA 6,79 A+ 5,82 B+ 6,20

EADSEurope Industrials B+ 7,06

Eastman Chemical Company Northern America Basic Materials A+ 5,01Eastman Kodak Company

Northern America Consumer Goods A+ 5,54 A+ 5,67

90 | P a g e

EdisonEurope Utilities C+ 6,46 B+ 7,92 A+ 6,96

El Paso CorporationNorthern America Oil & Gas C 6,59 C 5,94

ElectroluxEurope Consumer Goods CI 6,03

EMCEurope Technology B 6,86

EnCanaNorthern America Oil & Gas CI 5,67 B+ 6,32 B+ 5,80 B+ 6,46

ENI S.p.A.Europe Oil & Gas U 5,70 B+ 5,88 B+ 5,92

ExelonNorthern America Utilities U 7,11 U 6,35

Exxon MobileNorthern America Oil & Gas CI 8,24 U 8,17 U 7,95 U 7,79 U 7,36

FiatEurope Consumer Goods CI 3,52 CI 4,38 B+ 3,56

FinmeccanicaEurope Industrials U 4,93

FPL GroupNorthern America Utilities U 6,80

FluorNorthern America Utilities B 7,15 B 6,24

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Ford Motor Northern America Consumer Goods IA 5,09 A+ 5,21 A 5,06 A 3,89 A 3,78Fortis Europe Financials B+ 5,01 B+ 5,40France Telecom (-Orange) Europe Telecommunications U 5,41 B+ 5,66 A+ 5,16Freeport-McMoRan Copper & Gold Northern America Basic Materials IA 5,21 U 5,25 A+ 5,81Fujitsu Asia Technology U 4,92 B+ 5,06Gap Northern America Consumer Services U 5,92 U 6,28Gazprom Europe Oil & Gas B 5,62General Electric Northern America Industrials IA 8,29 A+ 8,24 A 8,40 A+ 7,44 A 7,07

91 | P a g e

Glaxo SmithKline (GSK) Northern America Health Care CI 6,58 CI 6,68 U 6,33 U 6,48 U 5,94H.J. Heinz Northern America Consumer Goods B 5,29 B 4,95Halliburton Northern America Oil & Gas C 6,03 A 7,40Hanwha Chemicals Asia Basic Materials A+ 3,35Heineken Europe Consumer Goods CI 5,48 U 4,54 U 5,59 U 4,99Henkel Europe Consumer Goods CI 5,03 U 6,03 B 5,25 B 7,12 B 5,79Herman Miller Northern America Consumer Goods B 7,83 B 6,39Hess corporation Northern America Oil & Gas B+ 5,74Hewlett - Packard Northern America Technology CI 7,08 B 5,56 B 7,38 B 7,04 B 7,74Hitachi Asia Industrials U 6,14 C 5,86 B+ 5,38Hochtief Europe Industrials B+ 6,48 B+ 6,62HSBC Holdings Europe Financials CI 6,92 U 6,50Hyundai Motor Asia Consumer Goods IA 5,39 A+ 4,66 A+ 7,28 U 4,41 U 4,49ITT Industries Northern America Industrials C 7,09 C 5,92Imperial Chemical Industries Northern America Oil & Gas CI 4,64Imperial Tobacco Europe Consumer Goods B+ 6,68 B+ 6,74 B+ 5,81ING Group Europe Financials U 6,16 U 6,15 A+ 5,63 A+ 4,39Ingersoll-Rand Northern America Industrials CI 6,96 U 6,51 B 6,37 B 6,09 B+ 5,84Intel Northern America Technology IA 7,88 IA 7,12 B+ 6,98 B 7,57 A 7,96IBM Northern America Technology A 7,57 A 7,50 A 7,55 A 7,60

92 | P a g e

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Jabil Circuit Europe Industrials C 4,31 C 4,82Jacobs Engineering Grp. Northern America Industrials U 6,32Johnson & Johnson Northern America Health Care CI 7,64 U 7,53 U 6,95 U 7,31 U 6,67Johnson Controls Northern America Consumer Goods CI 7,03 CI 6,87 A 6,50 A 6,39 A 6,26Jones Lang LaSalle Northern America Financials U 7,16 U 6,27Juniper Networks Northern America Technology A 7,11 A+ 6,65 A+ 5,76KAO Corporation Asia Consumer Goods CI 5,26 CI 5,36 U 5,58KB Home Northern America Consumer Goods U 7,30 U 6,58Kellogg Northern America Consumer Goods B 6,39 B 6,43Kimberly - Clark Northern America Consumer Goods U 6,34 U 6,09Kingfisher Europe Consumer Services B+ 5,17 B+ 6,48Kirin Brewery Asia Consumer Goods U 4,31 U 4,58Korea Gas Corporation Asia Utilities B+ 6,24Lafarge Europe Industrials A+ 5,22Lenovo Group Asia Technology U 4,77 U 5,21Lexmark International Northern America Technology B 5,68LG Electronics Asia Consumer Services CI 6,39 CI 6,14 U 6,41 B+ 5,77 U 5,79Liberty Mutual Insurance Group Africa Financials CI 5,96 B+ 6,42 B+ 6,07 B+ 5,93Linde Europe Basic Materials C 4,53 B 4,74 U 4,75 B+ 5,97L'Oreal Europe Consumer Goods CI 7,26 CI 7,16 U 7,25 U 6,93 B 6,86Louisiana-Pacific Corporation Northern America Industrials A+ 4,20L.M. Ericsson Europe Technology U 6,93 B+ 6,93 B+ 5,91 A+ 6,37Manpower Latin America Industrials B 6,06Marathon Oil Northern America Oil & Gas U 6,60Marks & Spencer Europe Consumer Services U 6,90Masco Northern America Industrials B 5,24

93 | P a g e

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Mazda Motor Asia Consumer Goods IA 5,51 IA 6,03 U 4,34 U 3,76McDonald's Northern America Consumer Services U 7,72McKesson Northern America Consumer Services C 6,63Medtronic Northern America Health Care C 6,66 B 6,52Merck Germany Europe Health Care B 5,88 B 6,67MetLife Latin America Financials U 5,94 U 5,37 B+ 6,26 B+ 5,99 B+ 6,47Metro Group Europe Consumer Services CI 6,66 U 6,76Microsoft Northern America Technology U 6,37 U 6,54Mitsubishi Electric Asia Industrials U 5,71 U 5,48Mitsubishi Heavy Industries Asia Industrials U 5,82Motorola Northern America Technology CI 7,41 CI 7,60 U 7,16 U 5,09 U 4,58NEC Corporation Asia Technology CI 5,84 U 5,35 U 4,86 B 4,93Nestle Europe Consumer Goods C 8,08 B+ 7,63Newmont Mining Northern America Basic Materials A+ 5,70Nike Northern America Consumer Goods U 7,82 U 8,02 B 8,15Nissan Motor Asia Consumer Goods U 6,12 U 5,17 U 3,80Nokia Europe Technology U 7,80 U 6,96 A+ 6,94Norsk Hydro Europe Basic Materials CI 6,81 B+ 6,68 B+ 6,33Occidental Petroleum (Oxy) Northern America Oil & Gas U 7,89 U 8,04 U 7,27Office Depot Northern America Consumer Services CI 5,64 C+ 5,70 C+ 6,13 C+ 4,52 U 4,75Oji Paper Group Asia Basic Materials U 5,71PPG Industries Northern America Basic Materials C 5,46 C 6,96Pepsi Co Northern America Consumer Goods U 6,50 U 7,47 U 6,88Petrobras Latin America Oil & Gas CI 5,37 A+ 6,14 A+ 6,63Pfizer Northern America Health Care B 6,00 B 5,25POSCO Asia Basic Materials IA 6,41 U 6,04 U 6,48 U 6,72 U 6,37Protcer & Gamble Northern America Consumer Goods U 8,39 U 7,69 U 7,94

94 | P a g e

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. ProLogis Northern America Financials C+ 7,62 B+ 8,09 B+ 6,09PSA Peugeot Citroen Europe Consumer Goods B+ 4,28 A+ 4,39Qualcomm Northern America Financials C 7,04 C+ 7,16Reckitt Benckiser Group Europe Consumer Goods B 7,13Renault Europe Consumer Goods U 4,57 U 3,58Repsol YPF Europe Oil & Gas IA 4,99 A+ 4,75 A+ 5,89 A+ 5,76Reynolds American Northern America Consumer Goods U 7,26 U 7,01Ricoh Asia Technology B 5,63 B 5,23 C 5,22Rio Tinto Europe Basic Materials A+ 5,94 A+ 5,97 A+ 5,37 A+ 6,30Royal Ahold Europe Consumer Services C 5,74 B 5,42 B+ 5,44Royal Bank of Scotland Europe Financials IA 5,73 B+ 6,46 B+ 6,12Royal Dutch Shell Group Europe Oil & Gas A+ 7,22 A+ 7,17 A+ 7,28 A+ 7,55 A+ 7,05Royal Philips Electronics Europe Consumer Goods CI 6,79 IA 6,63 B+ 6,77 B+ 5,98 A+ 5,62RWE Europe Utilities A+ 6,38 A 5,87 U 5,89 A+ 6,54SABMiller UK Europe Consumer Goods CI 3,78 B+ 4,59 B+ 5,49 B+ 6,26Samsung Electronics Northern America Technology A+ 5,88 A+ 6,74SAP Europe Technology C 6,49 B+ 6,19 A+ 6,41Sanofi - Aventis Europe Health Care U 6,07 U 5,56 U 5,54Sara Lee Northern America Consumer Goods U 4,67 B 4,73 B 4,85SCA Group Europe Consumer Goods C 5,61Sempra Energy Northern America Utilities U 6,40 U 6,45Siemens Europe Industrials IA 7,32 U 7,19 U 6,98 U 6,40 A+ 6,12Smithfield Foods Northern America Consumer Goods B 6,34 B 5,13 B 5,45Societe Generale Europe Financials CI 5,66 U 4,64Solvay Europe Basic Materials U 4,42Sony Europe Consumer Goods U 6,53 U 6,49 U 7,01 U 6,30 U 6,29

95 | P a g e

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. Southern Northern America Utilities U 6,55Southwest Airlines Northern America Consumer Services C+ 6,26Sprint Nextel Northern America Telecommunications U 4,11Starbucks Northern America Consumer Services CI 8,11 CI 8,09 B+ 8,12 B+ 6,88Statoil Europe Oil & Gas CI 6,31 U 6,50 U 6,72 A+ 6,42 A+ 6,59State Street Corp. Northern America Financials CI 6,35 B+ 6,63 B+ 6,86 B+ 6,23 B+ 6,29Steelcase Northern America Consumer Goods U 5,76Stora Enso Europe Basic Materials CI 6,65 CI 6,44 B+ 4,05Suez Environment Europe Industrials B+ 5,92Sumitomo Chemical Asia Basic Materials U 5,40Sumitomo Electric Industries Asia Industrials U 5,42 U 5,18Swiss Re / reinsurance Europe Financials U 6,18 U 6,21 U 6,18Target Northern America Consumer Services CI 6,66 U 6,90 U 6,92Technip Europe Oil & Gas B+ 6,41Telefonica Europe Telecommunications IA 6,40 A+ 6,40 A+ 6,04 A+ 6,47Teradata/Teredata Northern America Technology C+ 6,42Texas Instruments Northern America Technology CI 7,95 U 8,21 U 7,26 U 7,16 B 7,30Thyssen Krupp Group Europe Industrials U 6,69Time Warner Northern America Consumer Services CI 6,50TNT Europe Industrials IA 5,97 C+ 5,39 A+ 5,62 A+ 5,87 A+ 5,96Toshiba Asia Industrials IA 6,22 B 6,11 U 6,30 U 5,94 B+ 5,67Total Europe Oil & Gas CI 6,89 U 6,70 U 6,72Toyota Motor Asia Consumer Goods CI 7,51 U 7,86 A+ 6,25 A+ 5,20Tyco International Northern America Industrials U 5,32Tyson Foods Northern America Consumer Goods U 6,07 B 5,39U.S. Postal Service Northern America Consumer ServicesUBS Europe Financials CI 5,73 U 7,06 U 5,99 A+ 4,79Unilever Europe Consumer Goods CI 6,63 CI 6,46 B+ 6,10 B+ 6,55 B+ 6,52

96 | P a g e

97 | P a g e

2005 2006 2007 2008 2009 Region Industry R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. R. L. R. I. United Parcel Servive (UPS) Northern America Industrials CI 8,17 B 8,42 B 7,39Vale Latin America Basic Materials A+ 6,31Vivendi Universal Europe Consumer Services CI 5,25 U 5,74 U 6,65 U 5,70Vodafone Group Europe Telecommunications IA 6,47 B+ 6,42 B+ 6,38 B+ 6,48 B+ 6,63Volkswagen Europe Consumer Goods A+ 5,09 A+ 6,75 A+ 5,22VOLVO Europe Industrials IA 5,85 U 6,27 U 6,24 B 4,50 B 3,80Wachovia Corp. Northern America Financials C 6,01Wal-Mart Stores Northern America Consumer Services C 6,54 B 7,29 B 7,14Weyerhaeuser Northern America Basic Materials IA 6,90 A 6,75 A 7,20 A 5,76 A 5,10Woolworths Oceania Consumer Services CI 4,84 A+ 4,82 A+ 4,57Wyeth Northern America Health Care CI 6,43 U 5,89Xerox Northern America Technology B 6,92 B 7,28 B 6,51

98 | P a g e

Appendix B: Distribution CSR report levels over all variables 2005 (N = 85) 2006 (N = 106)CSR level A+ B+ B C+ U IA CI A+ A B+ B C+ C U IA CIFrequency 2 3 2 1 8 24 45 16 4 12 11 4 3 30 5 21Percentages 2,4 3,5 2,4 1,2 9,4 28,2 52,9 15,1 3,8 11,3 10,4 3,8 2,8 28,3 4,7 19,8Size (sales in million $) < 50.000 1,2 3,5 2,4 - 7,1 12,9 36,5 6,6 0,9 8,5 7,5 2,8 1,9 17,9 4,7 14,250.000 - 100.000 - - - - 2,4 11,8 9,4 4,7 1,9 1,9 1,9 - 0,9 4,7 - 4,7> 100.000 1,2 - - 1,2 - 3,5 7,1 3,8 0,9 0,9 0,9 0,9 - 5,7 - 0,9Financial Performances (ROA) < 0% - - - - - 1,2 - 0,9 - 0,9 - - - - - -0% - 10% 1,2 2,4 1,2 1,2 4,7 22,4 34,1 9,4 3,8 9,4 7,5 1,9 0,9 17,0 2,8 12,3> 10% 1,2 1,2 1,2 - 4,7 4,7 30,6 4,7 - 0,9 2,8 1,9 1,9 11,3 1,9 7,5SG&A expenses to sales < 15% 1,2 - - 1,2 2,4 12,9 17,6 6,6 0,9 0,9 0,9 1,9 0,9 9,4 - 4,715% - 30% 1,2 1,2 - - 4,7 8,2 14,1 2,8 0,9 3,8 4,7 0,9 1,9 13,2 2,8 3,8> 30% - 1,2 1,2 - - - 8,2 1,9 0,9 0,9 2,8 - - 0,9 - 6,6Unknown - - 1,2 - 2,4 7,1 12,9 3,8 0,9 5,7 1,9 0,9 - 4,7 1,9 4,7Regions Africa - - - - - - 1,2 - - 0,9 - - - - - -Asia - - - - 1,2 4,7 5,9 1,9 - 0,9 1,9 - - 3,8 0,9 1,9Europe 2,4 2,4 - 1,2 2,4 17,6 23,5 9,4 1,9 7,5 2,8 1,9 1,9 13,2 1,9 8,5Latin America - - - - 1,2 - 2,4 0,9 - - - - - 0,9 - -Northern America - 1,2 2,4 - 4,7 5,9 20,0 1,9 1,9 1,9 5,7 1,9 1,9 10,4 1,9 8,5Oceania - - - - - - - 0,9 - - - - - - - 0,9Industry Oil & Gas 1,2 - - 1,2 - 2,4 7,1 1,9 - - - 0,9 - 2,8 - 0,9Basic Materials - 1,2 - - 1,2 3,5 2,4 4,7 0,9 0,9 - - 0,9 4,7 0,9 1,9Industrials - - - - - 7,1 1,2 0,9 - 0,9 0,9 0,9 0,9 3,8 - 0,9Consumer Goods - - 1,2 - 2,4 3,5 15,3 4,7 - 0,9 1,9 - - 4,7 1,9 5,7Health Care - 1,2 - - - - 3,5 - - 0,9 1,9 - - 1,9 - 2,8Consumer Services - - - - - 1,2 7,1 - - 1,9 - 0,9 - 1,9 - 3,8Telecommunications - - - - 1,2 3,5 - 0,9 - 1,9 - - - - 0,9 0,9Utilities 1,2 - 1,2 - - 1,2 - 0,9 0,9 - 1,9 - - - - -Financials - 1,2 - - 2,4 4,7 9,4 0,9 0,9 3,8 1,9 0,9 - 5,7 - 1,9Technology - - - - 2,4 1,2 7,1 - 0,9 - 1,9 - 0,9 2,8 0,9 0,9

99 | P a g e

2007 (N = 136) 2008 (N = 167)

CSR level A+ A B+ B C+ C U A+ A B+ B C+ C U

Frequency 18 6 20 17 3 12 60 29 7 29 28 2 10 62

Percentages 13,0 4,3 14,5 12,3 2,2 8,7 43,5 17,4 4,2 17,4 16,8 1,2 6,0 37,1

Size (sales in million $)

< 50.000 8,0 2,2 10,1 8,7 2,2 8,0 28,3 7,8 1,8 10,2 12,0 1,2 3,6 24,0

50.000 - 100.000 2,9 0,7 3,6 1,4 - - 8,7 6,6 1,2 11,4 1,8 - - 6,6

> 100.000 2,2 1,4 0,7 2,2 - 0,7 6,5 3,0 1,2 1,8 3,0 - 2,4 5,4

Financial Performances (ROA)

< 0% 0,7 - 0,7 - - - 3,6 2,4 1,8 2,4 2,4 0,6 1,8 3,6

0% - 10% 7,2 4,3 8,0 8,7 1,4 3,6 21,7 10,8 1,8 10,2 9,0 0,6 2,4 22,2

> 10% 5,1 - 5,8 3,6 0,7 5,1 18,1 4,2 0,6 4,8 5,4 - 1,8 10,8

SG&A expenses to sales

< 15% 7,2 2,9 5,1 3,6 - 1,4 13,8 7,8 2,4 6,6 4,2 - 2,4 12,6

15% - 30% 2,2 1,4 5,8 5,8 0,7 2,9 7,2 4,2 0,6 4,8 8,4 0,6 1,8 15,6

> 30% 0,7 - 2,2 1,4 - 2,9 16,7 0,6 - 3,0 3,0 - 0,6 6,0

Unknown 2,9 - 1,4 1,4 0,7 5,1 5,8 4,8 1,2 3,0 1,8 0,6 0,6 3,0

Regions

100 | P a g e

Africa - - 0,7 - - - - - - 0,6 - - - -

Asia 0,7 - - - - 0,7 5,1 0,6 - 1,2 0,6 - 0,6 9,0

Europe 7,2 - 8,0 2,9 0,7 1,4 13,8 10,8 1,8 12,0 3,6 - 1,2 9,6

Latin America 0,7 - 0,7 - - - - 1,2 - 0,6 - - - -

Northern America 3,6 4,3 5,1 9,4 0,7 6,5 24,6 3,6 2,4 3,0 12,6 0,6 4,2 18,6

Oceania 0,7 - - - 0,7 - - 1,2 - - - 0,6 - -

Industry

Oil & Gas 1,4 - 1,4 - - 1,4 4,3 3,0 - 1,2 - - 0,6 3,0

Basic Materials 6,5 0,7 - 0,7 - - 3,6 3,6 0,6 0,6 - - 0,6 3,0

Industrials 0,7 0,7 0,7 2,2 0,7 - 5,8 2,4 - 2,4 3,0 0,6 1,2 3,6

Consumer Goods 2,9 1,4 3,6 3,6 - 2,2 10,9 3,6 1,8 3,6 4,2 - 1,2 9,0

Health Care - - 0,7 0,7 - 0,7 2,2 - - 1,2 1,2 - - 3,0

Consumer Services - - 2,2 - 0,7 2,2 4,3 0,6 - 1,8 1,8 0,6 1,2 3,0

Telecommunications 1,4 - 0,7 - - - 1,4 1,8 - 1,8 - - 0,6 -

Utilities - - - 0,7 0,7 - 0,7 - - 1,2 0,6 - - 3,0

Financials - - 3,6 2,2 - 0,7 5,8 1,2 1,2 2,4 2,4 - 0,6 3,0

Technology - 1,4 1,4 2,2 - 1,4 4,3 1,2 0,6 1,2 3,6 - - 6,6

101 | P a g e

2009 (N = 175)CSR level A+ A B+ B C+ C UFrequency 34 10 26 33 6 11 55Percentages 19,4 5,7 14,9 18,9 3,4 6,3 31,4Size (sales in million $) < 50.000 9,7 2,9 8,6 14,9 2,9 5,7 22,950.000 - 100.000 6,3 1,7 4,6 1,1 0,6 - 5,7> 100.000 2,9 1,1 1,7 2,9 - 0,6 2,9Financial Performances (ROA) < 0% 1,7 1,1 4,0 2,9 - 2,3 6,30% - 10% 14,3 3,4 7,4 9,1 2,9 3,4 19,4> 10% 3,4 1,1 3,4 6,9 0,6 0,6 5,7SG&A expenses to sales < 15% 9,7 2,9 2,3 6,3 0,6 3,4 10,915% - 30% 3,4 1,7 8,6 6,3 1,1 1,7 13,1> 30% 1,1 - 2,3 4,6 0,6 0,6 2,9Unknown 4,6 1,1 1,7 1,7 1,1 0,6 4,6Regions Africa - - - - - - -Asia 0,6 - 2,9 0,6 - 0,6 10,3Europe 13,1 1,7 8,0 5,7 1,1 1,1 6,9Latin America 1,7 - 0,6 0,6 - - -Northern America 2,9 4,0 3,4 12,0 1,7 4,6 14,3Oceania 1,1 - - - 0,6 - -Industry Oil & Gas 3,4 0,6 1,7 0,6 - - 2,3Basic Materials 4,6 0,6 1,7 - 0,6 0,6 2,9Industrials 1,1 0,6 2,9 3,4 0,6 2,3 3,4Consumer Goods 2,9 1,7 2,3 6,9 - 0,6 9,7Health Care - - 1,1 0,6 - - 2,9Consumer Services 0,6 - 1,7 1,1 0,6 1,1 4,0Telecommunications 2,3 - 1,1 - - 0,6 -Utilities 1,1 - 0,6 0,6 - - 1,1Financials 0,6 1,1 1,1 1,7 1,1 - 2,3Technology 2,9 1,1 0,6 4,0 0,6 1,1 2,9

102 | P a g e

103 | P a g e