To start with, factors that have significant impacts on social reporting include enterprise size, scope, and culture. Besides, the shifting of government power through derivative actions subjects the company to shareholders who do not care about social and moral considerations (Okoye 2015, p.374). Current paper, therefore, explains the meaning of CSR reporting, the way it differs from conventional corporate reporting, and the effect of CSR reporting quality on the financial performance of the company. Furthermore, it discusses the incentives for firms to take part in corporate social activities and the period it is feasible for the office to be engaged in the profit-sacrificing CSR.
Definition of CSR Reporting
CSR is a conception under which an organization should act responsible for a daily business and create the strategies for employees, customers, stakeholders, and shareholders. CSR reporting is the notification process of social and environmental influence which is caused by the economic activities of the given group and the organization. CSR identifies the future risks and opportunities that makes it increase the competitiveness of firms and help them keep the right long-term undertaking (Hahn and Kühnen 2013, p.21).
The Difference between CSR and Conventional Corporate Reporting
First, CSR is a section of accounting which covers voluntary and mandatory disclosure that a company makes concerning the issues relevant to the community. The roles of CSR include the assessment of the social and environmental effects of the corporate activities and the measure of the effectiveness of corporate and environmental programs. It is also responsible for the external and internal data system, therefore, allowing a comprehensive assessment of corporate resources and impacts (Hahn and Kühnen 2013, p.21). On the other hand, conventional social reporting offers some information about company’s performance position at a specific data, and the way financial standing points have changed. Some information in conventional social reporting includes the statement of assets entry, liabilities, income expenditures and profits entry, and ownership structure. Moreover, it provides data on the cash flow of investment, operation and financial activities (Jensen and Berg 2014, p. 303).
Effects of CSR Reporting Quality on Company’s Financial Performance
Importantly CSR fulfils credibility of the financial performance that is supported by top management commitment, methods of data collection as well as corporate policy description, and objectives. Besides, the level of critical stakeholder’s participation, as well as independent third-party verification of the company’s financial performance influence reliability. Secondly, CSR measurement strategies are the reputation indices, questionnaire-based survey, content analyses, and one-dimension measure. CSR may have some drawbacks specific to approaches and problems inherent in plans such as the subjectivity and selection bias of the researcher, therefore, affecting the financial performance of the firm (Hahn and Kuhnen 2013, p.18).
Incentives for Firms to Engage in Corporate Social Activities
A company with great innovation can relieve the concerns of stakeholders and get support by promoting goodwill and sustainability. The incentive of the firm is that signalling theory meets two interrelated criteria which must be observable and costly. Notably, CSR can accomplish the two approaches and undertake useful functions as a credible signal. First, the company with an excellent CSR records can establish a proper social image to appeal to stakeholders by offering moral capital. Considerably, the program can also assist in the identification of emerging problem, prevent fraud, minimize penalties, and avert corporate reputation (Ferrell, Liang, and Renneboog 2016, p.593).
Equally, CSR can efficiently separate companies that have different levels of sustainability. However, CSR is costly and calls for increased resources, and it takes long time before generating financial benefits for the company. According to Hong, Li, and Minor (2016), CSR affects the short-term market value of an organization (p. 200). On the other hand, a sustainable firm finds CSR to be cheap because the long-term benefits highly outweigh the short-term cost. Therefore, sustainability is a vital incentive for the company to embrace CSR. Besides, the concept helps in the reduction of the stakeholders’ concerns about transaction-specific investments because the expropriation of the stakeholder would damage the social image of the firm (Hahn and Kühnen 2013, p.21).
Time that is Feasible for Firms to Engage in Profit-Sacrificing CSR
Mainly, the legal regimes with the objectives of maximizing shareholders returns would sometimes offer a business judgment rule deference which gives room for profit-sacrificing discretion. The alternative of the elimination of the option through the creation of a legally enforceable duty to the maximization of revenue would bring about a litigation process rather than a market process for managers to be in charge of operational decisions. The procedure would lower the earnings of shareholders and heighten total agency costs because litigations are lengthy, costly, and have high error rates. In the other words, a profit-sacrificing CSR is feasible for the firms when they realize that some courts cannot determine what maximizes proceeds (Akdoğan, Arslan, and Demirtaş 2016, p. 259).
Likewise, managers who act as loyal agents of shareholders can sacrifice profit for social responsibility reporting to enhance the welfare the stakeholders. The individuals understand the failures of proponents of duty to profit-maximization given that companies cannot meet all the desirable regulations as required by law (Okoye 2015, p.374).
Conclusion
In essence, CSR is a conception under which the organization acts responsible for daily business operations and create strategies for employees, customers, and stakeholders to improve their welfare. Moreover, the CSR helps to reduce stakeholders’ concerns about transaction-specific investments given that repossessing stakeholder assets damage the social image of the firm.
References
Akdoğan, A.A., Arslan, A. and Demirtaş, Ö, 2016. A strategic influence of corporate social responsibility on meaningful work and organizational identification, via perceptions of ethical leadership. Procedia-Social and Behavioral Sciences, 235(1), pp.259-268.
Ferrell, A., Liang, H. and Renneboog, L., 2016. Socially responsible firms. Journal of Financial Economics, 122(3), pp.585-606.
Hahn, R. and Kühnen, M., 2013. Determinants of sustainability reporting: a review of results, trends, theory, and opportunities in an expanding field of research. Journal of Cleaner Production, 59(1), pp. 5-21.
Hong, B., Li, Z. and Minor, D., 2016. Corporate governance and executive compensation for corporate social responsibility. Journal of Business Ethics, 136(1), pp. 199-213.
Jensen, J.C. and Berg, N., 2014. Determinants of traditional sustainability reporting versus integrated reporting. An institutionalist approach. Business Strategy and the Environment, 21(5), pp.299-316.
Okoye, A., 2015. The UK social action, responsibility and heroism (SARAH) act 2015 and corporate social responsibility (CSR): potential connections. International Company and Commercial Law Review, 26(12), pp. 373-376.
