Corporate Social Responsibility and Financial Information: Theoretical Approaches and Recent Developments

Corporate Social Responsibility and Financial Information: Theoretical Approaches and Recent Developments

Irina Filipa Gavancha (Instituto Universitário de Lisboa, Portugal) and Inna Sousa Paiva (Business Research Unit, Instituto Universitário de Lisboa, Portugal)
DOI: 10.4018/978-1-7998-2128-1.ch001

Abstract

The importance of corporate social responsibility (CSR) has been increasing especially in the last decade, due to the positive pressure exerted by society in general. This chapter analyses the relevance of CSR, associated theories and studies carried out in the last decade related to financial information and consequently accounting quality. The strong link between CSR and financial information that is directed towards knowledge of mitigation of asymmetry information is evident. We aim to contribute to the development of sustainability accounting, presenting assumptions that mitigate the blocks of practice of CRS acts that make the return of positive elements possible, namely the image of entities and their financial economic improvement.
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Introduction

Social and environmental concerns have been increasing in recent years and have a significant impact on the daily lives of companies that have been adapting to the demands made by society, forcing the various players to adapt efficiently. For this reason, the rise of these concerns leads to a new stage of business which arouses our interest in analysing the non-financial information disclosure that underlies corporate social responsibility (CSR) practices and the disclosure of financial information.

As the business world is encouraged to work actively towards CSR in addition to providing a business opportunity in today’s world, it frequently reflects the expectations of firms’ customers, human resources, society and stakeholders (Mark-Herbert & Von Schantz, 2007). Previous studies on the relationship between accounting and sustainability argue that the concept of sustainability and the associated use of accounting have been deliberately simplified and oriented towards supporting the business interests of firms. Firms only adopt a sustainability approach if it can generate economic returns. In this regard, Milne, Tregidga, and Walton (2009) claim that sustainability issues are managed exclusively for the purposes of maintaining control over natural resources and technologies and boosting economic efficiency. Schaltegger, Bennett, and Burrit (2006) emphasize that the basis of financial reporting is the accounting information which transmits an organization’s financial performance to its stockholders. Later it became necessary to make new changes that would allow a different accounting approach, that of management, and later, in a strategic way, the use of the term sustainability report, which began to have an impact on issues such as the ecology, economy and social issues.

As a consequence, this study becomes extremely important in improving a continuous understanding of theories associated with CSR because it is a relevant and recent topic for accounting researchers (Martin & Moser, 2012). It raises accounting issues that have not yet been fully investigated, such as the importance of asymmetry information and the forms of disclosure of mandatory and voluntary information which should be taken into account, in which we can frame CSR. It is further noted that there are various definitions of CSR and many studies suggest that it generally refers to serving people, communities and the environment in ways that go above and beyond what is legally required of a firm (Ioannou & Serafeim, 2014). Overall, CSR is an extension of a firm’s efforts to foster sustainability by sound business practices (Cui, Jo, & Na, 2018).

Furthermore, the theoretical reflection of CSR and the disclosure of financial information is important not only because the theory of information asymmetry is one of the most important modern developments in accounting, economics, finance, management and other business studies, but also because the association between CSR and the disclosure of financial information could have broad implications for financial markets.

For this purpose, we will address the theories associated with CSR practices as well as some studies conducted in the area since 2010 related to financial information and consequently accounting quality. This new but not recent relationship between accounting and sustainability due to the growth of communication has generated rapid growth in the area, and these reports for the transmission of information related to management and accounting methods had a new foundation: sustainability (Schaltegger, Bennett, & Burrit, 2006).

Key Terms in this Chapter

Agency Theory: An agency relationship is described as a situation in which one party (the principal) delegates work to another party (the agent). Agency theory attempts to explain two problems. The type I agency problem consists of the separation between ownership and control, which leads to a divergence between management and owner interests. The type II agency problem arises from conflicts between controlling and non-controlling shareholders, which can result in executive entrenchment.

Legitimacy Theory: According to legitimacy theory, companies disclose social responsibility information to present a socially responsible image so that they can legitimize their behaviours to their stakeholder groups. Legitimacy theory is based on the idea that a social contract exists between business and society.

Corporate Social Responsibility: A number of corporate activities that focus on the welfare of stakeholder groups other than investors, such as customers, employees, suppliers and society.

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