Corporate Social Responsibility Information Disclosure and Corporate Fraud—“Risk Reduction” Effect or “Window Dressing” Effect?

Haifeng Hu, Bin Dou and Aiping Wang
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Haifeng Hu: Business School, Beijing Normal University, Beijing 100875, China
Bin Dou: Business School, Beijing Normal University, Beijing 100875, China
Aiping Wang: School of Economics, Beijing Technology and Business University, Beijing 100048, China

Sustainability, 2019, vol. 11, issue 4, 1-25

Abstract: We examine the impact in Chinese capital markets of publishing information on corporate fraud in a corporate social responsibility (CSR) report. We develop and test two competing hypotheses of “risk reduction” and “window dressing”. Based on the listed company’s CSR report, we analyze the effect of CSR disclosure on the commission of corporate fraud, fraud detection and the severity of corporate fraud. The research results show that after controlling for the firms’ characteristics and corporate governance factors, the CSR report’s information disclosures have a significantly negative relation to corporate fraud. Specifically, the CSR report’s publication reduces the information asymmetry between the insiders and the stakeholders, thus decreasing the tendency to commit fraud. Our findings support the risk reduction hypothesis but not the window dressing hypothesis. Further research shows that firms with a good CSR disclosure practice have a lower probability of committing corporate fraud and have fewer types of fraud violations, thereby mitigating the severity of corporate fraud.

Keywords: corporate social responsibility; corporate fraud; risk reduction; window dressing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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