Is CSR reporting always favorable?

What is it about?

In addition to their profit maximization objective, firms are currently challenged to meet environmental and social demands. The purpose of this paper is to test whether a firm’s macroeconomic environment moderates the efficiency of social and environmental disclosures. Results suggest that the effect of CSR disclosure on future firm performance depends on the surrounding macroeconomic environment. During tight economic situations, market participants become more self-centered and penalize firms diverting scarce resources towards non-profitable societal engagements. Moreover, findings indicate that firms with a high participation of outside directors and low accounting profit experience negative future performance when engaging in social disclosures at times of crisis.

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Why is it important?

This study identifies key moderating variables which present additional obstacles for firms engaging in CSR during adverse economic conditions. Outsiders’ inferiority in terms of lacking firm-specific expertise along with the firm’s poor accounting performance present additional financial constraints for firms engaging in CSR activities during economic downturns.