Does CSR Reporting Really Impact FERCs?

Abstract

ABSTRACT As part of a study on the value of corporate social responsibility (CSR) reporting for market participants, Dhaliwal, Radhakrishnan, Tsang, and Yang (2012) document a positive future earnings response coefficient (FERC) related to CSR report issuance. They argue the reports allow investors to better identify companies' social and environmental performance and thus better predict their future earnings. Our concern is that they fail to consider that CSR reports are likely issued for reasons other than informing investors, and we further argue that the low average quality of CSR reports makes it unlikely that companies use them for informing investors of actual social and environmental performance. Focusing on only first-time issuances of CSR reports by U.S. firms, we find, in contrast to Dhaliwal et al. (2012), no significant impacts on FERCs. Our results are robust to consideration of report quality and potentially differing impacts for firms operating in industries facing higher levels of social or environmental exposure. The findings thus suggest the claims made by Dhaliwal et al. (2012) regarding CSR reporting are questionable.