Communication via Responsibility Reporting and Its Effect on Firm Value in Finland
Corporate Social Responsibility and Environmental Management, Vol 17, No. 2, pp. 96-106, 2010
Posted: 3 Jun 2009 Last revised: 25 Feb 2011
Date Written: June 3, 2009
In this paper, we have first analyzed the responsibility reporting literature with an emphasis on the linkage between reporting and firm performance and firm valuation. Based on the literature review, we have developed a research question: How does the communication via responsibility reporting affect firm value? The market valuation of listed Finnish firms through a conventional valuation model combined with responsibility reporting is analyzed. The starting point for our valuation was the Ohlson model. We expanded upon the conventional valuation by studying whether communication via responsibility reporting is related to firm valuation. Our research question is linked to the broader academic question of whether earnings worth as an information source has been erased over the last few years. In addition to that, we contribute to the literature that tries to understand the link between corporate social responsibility and firm performance/share performance. Specifically, we focused on responsibility reporting according to the Global Reporting Initiative (GRI) and especially on whether the existence of those reports provides a further explanation for firm value.
Our sample was a population type that covered all listed Finnish firms that have adopted GRI. No other responsibility reporting practice was used by listed firms in their responsibility reporting communication during the years 2002–2005. The other necessary information for valuation models was obtained from Thomson Financial Services (commercial database). The applied model supported the conclusion that communication via GRI responsibility reporting is an important explanatory factor for firms’ market value. The result indicates that responsibility reporting is a part of a firm’s communication tools in order to decrease information asymmetry between managers and investors. In other words, GRI responsibility reporting is called for in order to produce a more precise market valuation of a firm.
Keywords: global reporting initiative, responsibility disclosures, firm value, Ohlson model, firm-to-else communication
JEL Classification: M41, M47,
Suggested Citation: Suggested Citation