How capital markets assess the credibility and accuracy of CSR reporting: Exploring the effects of assurance quality and CSR restatement issuance

Jennifer Martínez‐Ferrero, Emiliano Ruiz‐Barbadillo and Michele Guidi

Business Ethics, the Environment & Responsibility, 2021, vol. 30, issue 4, 551-569

Abstract: This research examines how the credibility and accuracy of corporate social responsibility (CSR) disclosures enhance market confidence by exploring their effect on the cost of capital. How do capital markets react to higher‐quality assurance of CSR reporting? Can the hypothetical reduction in the cost of capital that assurance quality produces be explained by restatements of previous information given in these CSR reports? We explore the relationship between assurance quality, as a proxy for credibility and market confidence, and the mediating effect of CSR restatements as indicators of accuracy. We propose regression models with a sample of CSR reports issued by European companies. Building upon the signalling and legitimacy theories, the results support the positive effect of higher assurance quality statements on market confidence by confirming a decrease in the cost of capital; assurance quality gives an indication of credibility to the capital market and restatements related to methodological updates signal accuracy. The reduction in the cost of capital brought on by higher assurance quality appears to be determined by the issuance of CSR restatements, which create legitimacy for both client companies and assurance providers. CSR reporting and assurance have reached a greater level of maturity as demonstrated by the evolution of these practices and financial market perceptions.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/beer.12355

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:buseth:v:30:y:2021:i:4:p:551-569

Access Statistics for this article

More articles in Business Ethics, the Environment & Responsibility from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().