Waddock & Graves (1997)
What is Corporate Social Performance (CSP)?
This term refers to how a firm performs with respect to its stakeholders and social responsibilities.
What does earnings management mean?
When a firm manipulates its reported profits to look better than reality. Usually through aggressive but legal accounting choices.
What does CSR reporting help reduce for investors?
Information asymmetry
What are the two competing views of CSR discussed in the article?
The agency view and the good-governance view.
What is the Slack Resources Theory?
This theory suggests that firms with strong financial performance have extra resources that allow them to invest in social initiatives.
What is the main research question of Kim et al.?
Kim et al. investigate whether firms with stronger CSR commitments are also more honest in their financial reporting and whether CSR can serve as a signal of a firm's overall ethical integrity.
What kind of relationship exists between the quality of financial disclosure and the cost of capital?
A negative one
Which of the two views does the article mainly support?
The good-governance view of CSR.
What type of relationship between CSP and CFP do the authors ultimately find?
A positive relationship
According to Kim et al., why would a high-CSR firm be less likely to manipulate its earnings?
Because genuine ethical values don't stop at sustainability. They carry over into how the firm reports its finances internally.
What type of firms does the study focus on when analyzing CSR reporting?
Firms that initiate CSR reporting (first-time adopters).
Name two governance-related characteristics that the paper associates with higher CSR.
lower cash abundance, positive pay-for-performance, small control wedge, strong minority protection
What is a multidimensional construct?
This term describes something that has multiple dimensions, making it difficult to measure consistently, as in the case of CSP.
What is the main finding of Kim et al.?
Firms with higher CSR scores engage significantly less in earnings management and have higher earnings quality.
Does CSR reporting always reduce the cost of equity?
No, only when CSR performance is strong and credible.
How is CSR related to shareholder protection and control wedge?
CSR is higher where there is stronger legal protection of shareholder rights and a smaller excess voting-power/control wedge.
What is the Virtuous Circle?
This concept describes the mutually reinforcing relationship between corporate social performance and financial performance.
Under what condition does the positive effect of CSR on earnings quality disappear?
When CSR is not genuine. Greenwashing firms do not show the same improvement in earnings quality.
What does the first hypothesis of Dhaliwal et al. (2011) predict about firms that initiate CSR reporting?
Firms with a higher cost of equity are more likely to initiate CSR reporting.
What does the paper find about CSR, firm value, and managerial entrenchment?
CSR is positively related to firm value and attenuates the negative effect of managerial entrenchment on value.