CSR reports: What do they really tell us?

Taken together, the annual reports published by 100 large enterprises fill a total of 25,000 pages every year. In addition to wide a range of quantitative information, these reports also disclose the companies’ corporate social responsibility activities. WU researcher Stéphanie Mittelbach-Hörmanseder investigates the reasons why there is so much variance in how different firms report their CSR activities. Her research also shows that the content of CSR reports can have effects on company value.

The EU’s Corporate Social Responsibility Directive has been incorporated into Austrian national law by means of the Sustainability and Diversity Improvement Act (Nachhaltigkeits- und Diversitätsverbesserungsgesetz, NaDiVeG). Effective as of 2017, this act requires large publicly listed companies to disclose not only business-related facts and figures but also non-financial information, for instance on environmental and social issues, employee relations, anti-corruption and compliance measures, and topics related to human rights. Stéphanie Mittelbach-Hörmanseder from WU’s Financial Accounting and Auditing Group has teamed up with Katrin Hummel, University of Zurich, and Charles Cho and Dirk Matten, Schulich School of Business, to investigate international differences in how companies word their reports and the reasons why their reports differ. Her research is based on the hypothesis that the institutional environments found in different countries have an impact both on the content and on the tone of companies’ CSR reports.

Liberal versus coordinated market economies

The results of the study confirm this assumption. They provide clear evidence that the reports issued by companies based in a liberal market economy like the US, where legal regulations are less extensive, differ from those published by companies based in coordinated market economies such as Austria, which are characterized by stricter and more far-reaching regulation. “In particular, we’ve found significant differences in tone when comparing the different CSR reports. Our results show that companies based in liberal market economies tend to use more positive language. Clearly, one of the reasons is that in liberal market economies, companies are under greater social pressure to report on CSR-related topics, which may not even be subject to any legal regulations in those countries,” explains Mittelbach-Hörmanseder.

A focus on education, social commitment, and parental leave

In their reports, companies based in liberal market economies place significantly more emphasis on topics like education, philanthropy, and parental leave policies. In typical coordinated market economies, education is seen as a public service, while private educational institutions and private donations to such institutions play a more important role in liberal market economies. As a consequence, companies in liberal market economies are more strongly involved in community activities and make more donations – and go into more detail about these activities in their CSR reports, as compared to their European counterparts. The two types of market economies also differ in how they approach the issue of parental leave and maternity protection. “European countries offer longer periods of parental leave and higher compensation compared to the US, where there is almost no legislation in place to protect working mothers after giving birth. For this reason, many companies emphasize their social commitment in their reports to strengthen their profile as attractive employers. You can clearly observe this tendency in corporations like Amazon, Apple, Google, and Facebook,” Stéphanie Mittelbach-Hörmanseder points out. “CSR reporting also gives companies the opportunity to differentiate themselves from their competitors,” she explains.

CSR disclosure can affect a company’s value

Preliminary results from the European context also suggest that CSR reporting on the topics required by EU legislation has certain effects on company value. Even though such effects exist, however, the disclosure practices of different firms are not uniform and vary from country to country. The preliminary findings show certain tendencies which indicate that the disclosure of some CSR topics may even have negative effects on firm value. The research is still ongoing, however, and final results on these aspects are expected to become available in the course of the year 2018.

About the study

The study uses specific textual analysis techniques to investigate English-language CSR reports issued by the largest publicly listed companies from nine countries in the period from 2008 to 2015. The sample comprises a total of 1,153 items.