CSR performance and annual report readability: evidence from France

• Pages: 201-215
• DOI: https://doi.org/10.1108/CG-02-2019-0060
• Published date: 12 November 2019
• Date: 12 November 2019
• Author: Sami Bacha,Aymen Ajina

CSR performance and annual report

readability: evidence from France

Sami Bacha and Aymen Ajina

Abstract

Purpose –This study aimsto examine the relationship between the corporatesocial responsibility (CSR)

performance and the readability of annual report. The shareholder theory suggests that CSR firms will

provide more transparent disclosures because this reflects a socially and environmentally responsible

behaviorand a firm’s commitment to high ethicalstandards. In the same time, the agencytheory offers an

opposite view. It predicts that opportunistic managers use CSR as an entrenchment strategy and hide

their maneuversthrough complex textualfinancial disclosures.

Design/methodology/approach –Based on a sample of 100 listedfirms on the French CACAll-shares

index over the period from 2013 to 2016, the authors use a panel regression analysis and run other

estimation methods (IV-2SLS) and simultaneous equation model to address the endogeneity issues.

They assess thereadability of annual reports using the Gunning-FogIndex and the Flesch Index derived

from the computationallinguistics literature.

Findings –The results show a significant positive relationship between CSR performance and the

readability of annual report. Firms engaging in CSR practices are more likely to provide transparent

disclosures with higher readability because this reflects a socially responsible behavior and a firm’s

commitment to high ethical standards. This result supports the stakeholder theory and the corporate

reputational view.The finding is also robust to alternative readabilitymeasurements and to endogeneity

bias.

Practical implications –This study helps all marketparticipants to more comprehensively evaluatethe

CSR performance disclosedon annual report. It encourages managers to consider CSR as a means to

prevent the opacity risk through improved information quality. It also drives French authorities to better

regulate the narrative disclosure of CSR firms and change the way companies design their reporting

practices. Moreover, it encourages CSR rating agencies to become the dominant definition of CSR

evaluationby granting more importance to the qualityof disclosed information.

Originality/value –This study extends previousresearch on the potential impact of CSR on information

quality measuredby annual report readability in the French context.Unlike prior studies on the impact of

CSR on information quality, that focus exclusively on earnings management and adopt qualitative

approaches to assess the SCR score, the authors use simultaneously the Gunning–Fog Index and the

Flesch Index to assessthe information quality and extract the CSR scorefrom the CSRHub database of

companies’social, environmental and governanceperformance.

Keywords Information quality, Disclosure, Readability, Corporate social responsibility,

Annual report, Stakeholder theory

Paper type Research paper

1. Introduction

Financial information is no longer considered as a complete or informative. Traditional

financial statements are unable to capture the value stemming from intangible assets and

appreciate the strategic strengths, increasing thus informational problems and deteriorating

efficient allocation of resources on stock market (Lev, 2001). Currently, companies have to

focus more on non-financial information in corporate disclosure. Non-financial disclosure is

considered to be vital in solving the alleged problems with traditional financial reporting

(Arvidson, 2010). A high level of transparency lessens information asymmetry and improve

Sami Bacha and

Aymen Ajina are both

based at the Faculty of

Economics and

Management Sciences of

Sousse, University of

Sousse, Sousse, Tunisia.

Received 9 October 2018

Revised 15 July 2019

25 August 2019

25 September 2019

8 October 2019

Accepted 9 October 2019

DOI 10.1108/CG-02-2019-0060 VOL. 20 NO. 2 2020, pp. 201-215, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 201