The credibility of corporate social responsibility (CSR) reports is contingent on social and legal institutions. Based on a comprehensive sample of CSR reports in Taiwan, where legal environment and reputational concerns are weaker than in the U.S., we find that CSR reports do not in general help prevent future CSR-related high-profile misconduct or mitigate investors’ negative reaction to misconduct events, but external assurance provides incremental certification that enhances the credibility of CSR reports. In other words, CSR reports are superfluous unless accompanied by third-party assurance.

We also find that the signaling role of assurance only exists for firms with prior misconduct. These findings contrast with existing evidence based on U.S. data and underscore the importance of understanding CSR activities in the context of litigation risk and reputational capital.

 

By: Kai Du and Shing-Jen Wu

 

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