Does Corporate Social Responsibility Reduce Information Asymmetry? Empirical Evidence from Australia

Abstract

This study examines whether corporate social responsibility (CSR) reduces information asymmetry (IA). Using a firm-level CSR dataset of Australian publicly listed firms from 2004 to 2014, we estimate IA models using a fixed-effects panel estimator. We find that CSR performance is negatively associated with IA. Moreover, this negative relationship is stronger for larger firms and firms with stronger market power. We also find that the negative association between CSR and IA decreases for firms with a high level of equity risk. Our results are robust to alternative measures of CSR and IA, model specifications and endogeneity controls.

Keywords: corporate social responsibility, information asymmetry, product market power

JEL Classification: D82, G34, M14