Relationship between Corporate Voluntary Disclosures and Corporate Financial and Social Performance: empirical research based on 200 firms listed on FTSE 350 Index

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Abstract

The purpose of the paper is to analyze the relation between the corporate disclosure, financial performance and social performance of the company listed in the FTSE 350 index. For the purpose of the research we have chosen the top 200 companies operating on the top of FTSE 350 index. The main aim of the paper is to find out if there is a positive relation between the exists between Corporate Voluntary Disclosure Index and Corporate Social Performance or not.

Table of Contents

CHAPTER 1 INTRODUCTION4

Background of the Study4

Problem Statement7

Significance of the Study8

Rationale of the Study8

Research Aims and Objectives10

Hypothesis Development11

CHAPTER 2 LITERATURE REVIEW12

Sustainability and Corporate Sustainability Reporting13

Global Reporting Initiative14

Corporate Responsibility16

CSR and financial performance18

Accounting disclosures and social responsibility19

The theoretical approaches of CSR and CFP20

CHAPTER 3 RESEARCH METHODOLOGY23

Research Designs23

Mixed Methodology24

The models24

Empirical Research Model26

The data set26

CHAPTER 4 EMPIRICAL ANALYSIS29

The link between Corporate Social Responsibility and Firm's Financial Performance29

Measuring financial performance31

Measuring corporate social responsibility31

Descriptive statistics33

Correlation matrix and bivariate results34

Regression Analysis35

CHAPTER 5 CONCNLUSION39

CHAPTER 1 INTRODUCTION

Background of the Study

Utilization of several different theoretical approaches explains the findings of the relationship between CSR and CFP, as various studies have shown globally. Notably, there are four postulates of the theoretical relationships between CSR and CFP, namely, the trade-off hypothesis; the supply and demand theory of the company; the social impact of hypothesis; and the theory of modern corporate stakeholder. All these theories broadly investigate the impact of CSR on CFP.

The trade-off hypothesis, introduced by one of the researchers known as Friedman (1970) disagree with the fact that the only social responsibility of a company is to enhance its profits. Furthermore, when companies become involved in social and environmental activities, it incurs extra expenses and decreases the earnings of the companies. Hence, according to this theory, the higher a company's CSR level, the lower the CFP. Consequently, increasing the involvement of companies in social activities could increase the amount of resources spent by the company, and, as a result, reduces the profitability of the company. Thus, this places the company in a disadvantageous position compared to a company which is not involved in CSR activities. In this regard, CSR has a negative impact on CFP (Moore, 2001; Vance, 1975).

The supply and demand theory of the company was introduced by McWilliams and Siegel (2001). According to this theory, the demand for the involvement of a company in CSR activities maximizes a company's profits. Steger et al. (2007) state that in an equilibrium condition, the level of CSR may be different; however, profit may be maximized or not changed. Hence, there is no relationship between CSR and CFP. This theory is supported by empirical findings of previous studies (Mahoney and Roberts, 2007; Patten, 1990; Freedman and Jaggi, 1988; Alexander and Buchholz, 1978) that found no relationship between CSR and CFP.

The social impact hypothesis constructed by Cornell and Shapiro (1987) assumes that the improvement of a company's CSR activities will improve ...