DOES CORPORATE SOCIAL RESPONSIBILITY REDUCE INFORMATION ASYMMETRY?: EMPIRICAL EVIDENCE FROM PAKISTAN

Abstract

Purpose: The work empirically investigates the effect of corporate social responsibility (CSR) on information asymmetry (IA). Methodology: For analysis, the study uses annual data ranging from 2007 to 2017, collected from the published reports of companies registered at the Pakistani equity market comprising the non-financial sector. An unbalanced panel of 257 companies with 2383 observations is analyzed using the generalized methods of moment (GMM) technique. Main findings: In line with stakeholder's theory, results disclose a negative association between the variable of CSR and IA. It suggests that investing in CSR-related activities will reduce the asymmetry of information among managers and shareholders. Application of the study: Findings of the study uncover the benefits of CSR in relation to IA that must be considered while formulating any strategy both at the governmental and corporate level. Government should facilitate corporations that engage in CSR work while firms must include CSR in their policy-making as it can significantly reduce information asymmetry. Novelty/ originality of the study: This study provides a deep analysis in the form of behavioural association and the effect of CSR practices on information asymmetry in the context of the Pakistani non-financial sector. The study endorses the concept of CSR practices for the reduction of information asymmetry in Pakistani firms.