Article2019

Audit quality, media coverage, environmental, social, and governance disclosure and firm investment efficiency

Ahmad Hammami · Mohammad Hendijani Zadeh

175 citations0/0 files storedInternational Journal of Accounting and Information Management

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Corporate Social Responsibility Reporting Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this study is twofold: first, to introduce two determinants of environmental, social and governance (ESG) disclosure transparency, namely, audit quality and public media exposure; and second, to investigate the impact of ESG transparency on firm-level investment efficiency. Design/methodology/approach Ordinary least square (OLS) regressions are applied to explore the relationship between the two variables of interest (audit quality and public media exposure) and ESG transparency on a sample of publicly listed Canadian firms during the period 2008 to 2017. Then, an econometric model is used to investigate the association between ESG transparency and investment efficiency under two identified scenarios, under-investment and over-investment. Findings Results show that audit quality and public media exposure are two main drivers of ESG transparency, hence, commitment to high-quality audits and exposure to high public media coverage drive firms to disclose more extensive and transparent ESG information. The authors also find a negative association between ESG transparency and firm-level investment inefficiency. Thus, ESG transparency generates influential incremental information that helps mitigate the information asymmetry between firms and stakeholders while fostering better resource allocation through investment efficiency. Originality/value This study contributes to the corporate social responsibility (CSR) and ESG literature by identifying audit quality and public media exposure as two determinants of ESG transparency; and by noting that higher ESG transparency has a significant economic effect on capital investment decisions through higher firm-level investment efficiency.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1995Managing Legitimacy: Strategic and Institutional Approaches 1978Specification Tests in Econometrics 2008The cost of capital, corporation finance and the theory of investment 1991Earnings Management During Import Relief Investigations 1995A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance 1997THE CORPORATE SOCIAL PERFORMANCE-FINANCIAL PERFORMANCE LINK 2010Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting

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