Usefulness of corporate social responsibility disclosures to investors: Effects of sustainability reporting quality and secrecy on earnings forecasts

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Even though disclosure of CSR reports is widespread, research on whether and how disclosure affects the capital market does not provide consistent results. This study posits that for CSR disclosure to be useful, companies need to make an effort, and stakeholders should positively perceive the efforts made. Specifically, sustainability reporting quality (SRQ) and secrecy represent internal and external legitimation structures that explain variations in the usefulness of CSR disclosures to investors. While SRQ indicates variations in managerial legitimation on the quality of CSR disclosure, secrecy indicates variations in cultural legitimation on CSR issues. This study argues that SRQ, as a result of managerial considerations, and secrecy, as a result of cultural norms and values, determine the extent to which disclosure of a CSR report is useful to investors. Useful CSR disclosures will result in a decrease in information asymmetry and improved earnings forecast accuracy. Using a sample of 2317 firms, among 54 different countries, that voluntarily issued CSR reports, during the years 2012-2018, the results show that SRQ positively affects earnings forecast accuracy, and that secrecy moderates the SRQ-earnings forecast relation. The results indicate that SRQ and secrecy explain variations in the usefulness of CSR disclosure to investors internationally.
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