Value Relevance of Corporate Social Responsibility Reports

Purpose of this thesis is to find how shareholders use CSR reports in their investment decisions. Special emphasis is put on the reporting framework used and the third-party assurance that is provided for the CSR report. These two points have not been extensively investigated yet and contribute to the existing research on the value relevance of CSR reports. In this thesis, reports complying with the Global Reporting Initiative (GRI) are investigated. In line with prior research a model is built in which share price is regressed on accounting variables (earnings and book value) and three dummies for GRI reporting, including third-party assurance and a high quality level measure. This model is tested on a sample of listed European firms and different regression methods are used. Results of the regressions show that reports complying with (assured) GRI are not value relevant. However, assured GRI reports with an application level A are value relevant. A negative relation with share price is found, meaning that shareholders do not think CSR reporting adds financial value to a firm. There are different reasons for this negative reaction. One is that shareholders consider CSR activities a misallocation of resources, which reduces firm value on the long run. Another interesting conclusion of this thesis is that shareholders do not use the content of GRI reports for their investment, but they use the quality and reliability indicators of these reports to identify the best performing firms on CSR reporting.