The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1030-9616.htm

CSR
Is CSR performance performance
related to disclosure tone
in earnings announcements?
Yu Lu 129
Business School, Beijing Technology and
Business University – Fucheng Road Campus, Beijing, China Received 24 May 2016
Revised 7 January 2017
1 May 2017
Steven Cahan Accepted 4 May 2017
Department of Accounting and Finance,
University of Auckland, Auckland, New Zealand, and
Diandian Ma
Graduate School of Management, University of Auckland,
Auckland, New Zealand

Abstract
Purpose – This study aims to examine whether the disclosure tone in earnings announcements is related to
a firm’s corporate social responsibility (CSR) performance.
Design/methodology/approach – Considering the lower likelihood of earnings management conducted
by CSR-conscious firms, and the significant market impact of the tone of disclosure in the earnings
announcements, the study investigates whether firms with good CSR performance attempt to influence
investors’ judgements through “soft information” and, thus, produce earnings announcements with more
positive tone. Specifically, it examines whether CSR performance is positively related to the optimistic
disclosure tone in earnings announcements.
Findings – The study finds that more socially responsible firms exhibit a more optimistic tone in earnings
announcements. The findings are robust to a variety of sensitivity tests and data from different years.
Furthermore, the study finds that the positive association between CSR performance and disclosure tone in
the earnings announcement is particularly apparent in the manufacturing industry.
Research limitations/implications – This study contributes to the literature in multiple ways.
Practical implications – These findings should assist regulators in better understanding the verbal
components in earnings announcements.
Social implications – It is possible that firms might opportunistically engage in CSR activities to enhance
their social image to exaggerate financial performance and influence investors’ 2019 decisions.
Originality/value – These results show that CSR performance is positively associated with the optimistic
tone in earnings announcements. The findings are consistent with two alternative interpretations. First, even
though CSR-conscious firms are unlikely to engage in earnings management, they may engage a more subtle
form of impressions/tone management. Second, firms with better CSR performance may have better financial
performance, and thus are more confident and optimistic, resulting in a more positive tone in their earnings
announcements. As the study controls for financial performance and find a positive relation between CSR
concerns and optimism in earnings announcements, it favors the previous explanation.
Keywords Corporate social responsibility, Financial performance, Disclosure tone
Paper type Research paper
Accounting Research Journal
Vol. 32 No. 2, 2019
pp. 129-147
© Emerald Publishing Limited
1030-9616
JEL classification – G10, M14, P17 DOI 10.1108/ARJ-05-2016-0059
ARJ 1. Introduction
32,2 Corporate social responsibility (CSR) is becoming an increasingly important issue as
managers recognize that financial performance is not the only metric of success in the
business world. In accounting, a number of studies find that firms’ CSR performance and
their communications related to corporate ethics and responsibility can evoke strong
reactions among investors (Morsing and Schultz, 2006; Wanderley et al., 2008). In particular,
130 in the wake of the major corporate scandals such as Enron and Worldcom, disclosures about
socially responsible activities are increasingly associated with investor confidence, firm
reputation and firm value (McBarnet, 2005).
Consistent with Mullainathan and Shleifer’s (2005) catering theory, Cahan et al. (2015)
find that more socially responsible firms receive more favorable media coverage. Previous
research also shows that ethically and socially responsible firms are less likely to conduct
earnings management and, thus, produce more transparent and reliable financial
information (Atkins, 2006; Kim et al., 2012). Given that CSR practice has a positive impact on
a firm’s social image and that good CSR performance is associated with more reliable
financial information, firms with good CSR performance might use their positive images to
exaggerate non-financial information or to provide a camouflage for misconduct on the part
of the manager or firm (Lang and Lundholm, 2001; Hemingway and Maclagan, 2004).
Alternatively, CSR-conscious firms with good financial performance may simply have
better future prospects, leading to greater optimism in their disclosures.
Recently, attention has also been paid to the non-numerical components – the “soft
information” of earnings announcements. Tetlock et al. (2008) document that qualitative
information – specifically, the negative words in firm-specific news stories – is captured in
stock prices and can be used to predict firms’ accounting earnings and stock returns.
Feldman et al. (2010) find that the market reacts strongly to changes in tone in the earnings
announcements, after controlling for accruals and earnings surprises. Hales et al. (2011)
investigate the effects of vivid language on investors’ judgements and find that disclosure
tone has a significant influence on investor judgements. These studies suggest that
disclosure tone conveys material information which cannot be captured by the numerical
component in earnings announcements (Durnev and Mangen, 2011).
In this study, we investigate whether firms with good CSR performance is associated
with earnings announcements that have a more positive tone. We find that CSR
performance has a significant positive association with the disclosure tone in earnings
announcements, which suggests that firms with good CSR performance generally deliver
more optimistic earnings announcements. As we control for financial performance in our
tests, our results suggest that firms with good CSR may not explicitly engage in earnings
management (Kim et al., 2012), they may engage in a more subtle form of impressions
management, i.e. adjusting the tone used in their disclosures. That is, if the manager’s
optimism is inappropriate, investors may be potentially misled as to the current and future
financial performance and firm value. Our results are robust to alternative proxies for CSR
performance measurement and disclosure tone, and the use of data from a different year.
To enhance our analysis, we further investigate the association between the total CSR
strengths (concerns) and the disclosure tone. The results show that both total strengths and
concerns are positively correlated with the optimistic tone in the earnings announcements.
The positive association between CSR strengths and the disclosure tone can be interpreted
in a similar way as the main test results. However, the positive association between the CSR
concerns and the positive tone in the earnings announcements suggests that firms with
higher CSR concerns also disclose earnings announcements in a more positive tone. This
latter finding is consistent with an opportunism interpretation and less consistent with
better financial prospects driving our results since CSR concerns are likely to have a CSR
negative impact on financial performance. Our additional tests results also show that the performance
association between CSR performance and a firm’s earnings announcement tone is
particularly apparent in the manufacturing industry. Finally, the results are robust to using
data from different years.
Our study contributes to the literature in multiple ways. Previous research suggests that
separately, CSR performance and earnings announcement disclosure tone have strong
impacts on investors (Rogers et al., 2011; Kim et al., 2012). However, earlier research has not 131
explored whether CSR performance is related to the tone of earnings announcements. Thus,
our study extends the growing literature on CSR issues by examining how CSR affects how
firms communicate non-CSR related information to investors. Previous research shows that
CSR firms provide more reliable financial information (Kim et al., 2012). However,
influencing investors’ decisions is about more than just using “hard numbers”; the verbal
component of earnings announcements can also significantly influence investor judgements
(Hales et al., 2011). Motivated by extant research, our interest lies in the effect of CSR
performance on the verbal component – the disclosure tone – in earnings announcements.
We also consider that our findings regarding the association between CSR performance
and disclosure tone in earnings announcements to be important for investors and regulators.
It is important to understand managers’ incentives for engaging in CSR activities (Moser
and Martini, 2012). Our findings suggest that even though firms with good CSR
performance may not engage in earnings management (Kim et al., 2012), they may engage in
tone management.
This research proceeds as follows. Section 2 reviews the literature and develops the
hypotheses. Section 3 discusses the research design including the sample selection, variable
definitions and model construction. Section 4 presents the results, and Section 5 concludes.

2. Literature review and hypothesis development

A growing literature has documented that CSR activities and disclosures provide useful
information to investors, and influence their decision-making and estimates of firm value
(Dhaliwal et al., 2011; Dhaliwal et al., 2012; Di Giuli and Kostovetsky, 2014; Epstein-
Reeves, 2010; Kim et al., 2012; Rennekamp, 2012; Shank et al., 2005). A substantial
number of studies also explore the relation between firms’ earnings disclosures and the
market’s reaction or firm valuation (Lang and Lundholm, 2001; Files et al., 2009; Henry,
2006, 2008; Hales et al., 2011; Lehavy et al., 2011; Tan et al., 2014; Tetlock et al., 2008).
However, while it has been documented that both CSR performance and the tone of
earnings announcements have a significant impact on investors and firm valuation, the
association between CSR performance and earnings announcements disclosure tone
remains unexplored.
Social responsibility is a significant “driving force” of increased ethical behavior
(Linthicum et al., 2010). Ethical, political and integrative theories of CSR indicate that
managers have an incentive to be ethical and to do right things in business processes
(Phillips et al., 2003). Kim et al. (2012) find that CSR firms have higher quality accruals, and
are less likely to be the subject of SEC investigations. They interpret their results as
evidence that managers in good performing CSR firms are more ethical and, thus, are more
likely to deliver high-quality accounting information to investors. Consistent with Kim et al.
(2012), Cheng et al. (2014) also find that CSR performance is positively related to earning
quality and corporate transparency. Further, other research indicates that CSR performance
is positively related to corporate reputation (Linthicum et al., 2010), while negatively
associated with information asymmetry (Cho et al., 2013) and tax aggressiveness (Lanis and
ARJ Richardson, 2012). At the same time, good performing CSR firms also tend to have better
32,2 financial performance (Dhaliwal et al., 2012; Griffin and Mahon, 1997; Waddock and Graves,
1997; Roman et al., 1999), lower cost of capital (Dhaliwal et al., 2011) and lower cost of bank
loans (Goss and Roberts, 2011).
Alternatively, the demand for CSR activities can be driven by non-ethical concerns
of managers (Fritzsche, 1991). Numerous studies (Fombrun and Shanley, 1990;
132 Verschoor, 2005; Linthicum et al., 2010) point out that CSR activities send a positive
signal about firm reputation, suggesting that CSR performance may be motivated by
reputation building. For example, a stronger relation between CSR and media
favorability for “sin” firms is documented by Cahan et al. (2015), which supports the
view that firms use CSR performance to bolster the firm’s reputation and to create a
more positive image.
A few studies investigate if managers use CSR opportunistically to maintain a good
reputation, or to disguise other devious practices (Prior et al., 2008; Hemingway and
Maclagan, 2004; Jensen and Meckling, 1976; Carroll, 1979). Agency theory suggests that
managers may have incentives to increase their firm’s CSR, and disclose their firm’s
performance in a more favorable manner to pursue their self-interest and disguise other
unethical practices (McWilliams et al., 2006; Prior et al., 2008). Although Kim et al. (2012) find
that CSR firms are less likely to manipulate “hard numbers,” their findings do not preclude
the possibility that firms with a socially responsible image and reputation of providing
transparent and reliable information can use “non-numeric” information to manage
investors’ impressions.
It is well documented that the content, language and presentation of the earning
announcement is mostly discretionary (Henry, 2008; Davis et al., 2012; Li, 2008). Earnings
announcement language provides opportunities for managers to affect the market
participants’ perceptions of the firm’s future performance (Davis et al., 2012). In a
different context, Li (2008) analyses the association between annual report readability
and firm performance and earnings persistence, and finds that annual reports of firms
with lower earnings are harder to read, compared to the annual reports of firms with more
persistent positive earnings. Li (2008) also claims that managers issue less readable
disclosures to reduce the influence of poor results, and often portray the firm’ results
overly favorable. Similarly, Zechman (2010) points out that managers with incentives to
use off-balance sheet financing do not provide transparent disclosure about synthetic
leases. Studies also corroborate that managers “hype” their stock by increasing
discretionary and optimistic disclosure in the aim of reducing the cost of capital or
influence short-term prices, especially before new stock issues (DuCharme et al., 2004;
Lang and Lundholm, 2001).
Given the importance of disclosure tone, managers of good performing CSR firms may
exploit their favorable image and use more optimistic language when announcing their
earnings. However, whether they do is not obvious. First, previous research suggests good
CSR firms are more ethical, and this ethicality may affect all of the firm’s decisions including
the preparation of the earnings announcement. Ethical firms may refrain from tone
management for the same reason they refrain from earnings management. Second, firms
face strong constraints in terms of tone management. For example, Rogers et al. (2011) find
that more optimistic language used in earnings announcements leads to more lawsuits.
Higher litigation risk is found when managers are both unusually optimistic and engage in
abnormal selling. Ethical firms may be even more sensitive to these constraints than less
ethical firms. As a result, whether managers of good performing CSR engage in tone
management is an empirical question.
 Consequently, we propose the following hypothesis: CSR
H1. CSR performance is associated with optimistic disclosure tone in earnings
performance
announcements, controlling for the financial performance.
In testing H1, two caveats are in order. First, given that it has been well documented that
managers’ earnings disclosure behaviors vary with firms’ financial performance it is
possible that firms with good CSR performance have better financial performance, and that 133
better financial performance leads to more optimistic earnings announcements. Our
empirical strategy to address this concern is to control for financial performance measured
by ROA. However, as ROA is only one measure of financial performance, we cannot
completely rule out this competing hypothesis. Second, in this study, we do not test whether
investors are misled by the optimism in the earnings announcement. In other words, if there
is opportunism embedded in the earnings announcement, investors may be able to see
through this and make adjustments when the optimism is excessive.

3. Research design
3.1 Sample selection
Our sample data comprises 1,848 stocks from 8 industrial groups listed on the New York
Stock Exchange, the American Stock Exchange and the Nasdaq Stock Market. Data from
the same jurisdiction ensures a common regulatory and market environment. The financial
data is drawn from the COMPUSTAT, auditor data are collected from Audit Analytics and
the annual earnings announcement of each company is hand-collected from their respective
company websites.
The CSR data is obtained from the Kinder, Lynderberg, Domini Research and Analytics
Inc. (KLD) database. KLD rates CSR performance on the basis of various attributes using a
large variety of resources including financial statements, business press, academic journals
and government reports. Since 2003, it has covered 3,000 of the largest companies and
evaluates the environmental and social performances of firms along seven dimensions
(KLD, 2006). For each dimension, KLD separately rates positive indicators (strengths) and
negative indicators (concerns). We use KLD social performance rating scores as our measure
of CSR performance[1].
Our main analysis uses CSR data from the year 2012, and the financial and auditor data
from the year 2013, to avoid the econometric issue of stickiness of observations over
multiple years. The one-year lag between the CSR data and the financial and auditor data is
to ensure that CSR is measured prior to the earnings announcement so that the earnings
announcement disclosure tone can capture the level of CSR performance at the time the
earnings announcement is released[2].
Our data collection starts from the CSR included in the KLD database. The KLD
database contains data on 2,016 firms in 2012. Of the 2,016 firms, we lose 57 after matching
KLD database with COMPUSTAT and Audit Analytics databases and another 111 after
matching with annual earnings announcements. Our final sample data consists of 1,848
observations. The collection process of data is presented in Table I.

3.2 Variables and empirical test models

3.2.1 Measurement of earnings announcement tone. We compute the positive disclosure
tone of the earnings announcement for every firm. The positive disclosure tone is defined as
the extent to which managers describe the positive outcomes in a positive manner. We use
content analysis, which counts the frequency of positive words from pre-specified word lists
ARJ (Rogers et al., 2011). When pre-specified positive words appear more frequently in an
32,2 earnings announcement, that earnings announcement delivers a more positive disclosure
tone.
Previous research examines the verbal components of earnings announcements using
computer-based textual analysis software. The dictionary approach uses mapping
algorithms to read text and classify words or phrases which match with pre-specified rules
134 generally agreed upon by readers (Li, 2010). This method minimizes manual errors such as
overlooked words and replication issues raised by subjectivity in the manual coding
process. We use Diction 7.0 to conduct our analysis.
Following Henry (2006), we choose 118 key positive words that show optimistic tone of
the verbal components disclosed in the earnings announcements. The optimistic tone of an
earnings announcement is calculated as the sum of positive components (e.g. praise,
satisfaction and inspiration) minus the sum of negative components (e.g. blame, hardship
and denial), scaled by the total word count of the earnings announcements and then
multiplied by 10,000[3]. The deflation allows for comparison between earnings
announcements of different lengths (Rogers et al., 2011). We label this measure Optimism. In
the additional tests, we use two alternative measurements of the optimism tone in the
earnings announcements, the positive tone (Rogers et al., 2011) and the net tone (Henry,
2008). The alternative measurements and results are discussed in the alternative analysis
section.
3.2.2 Measurement of CSR. KLD evaluates CSR in areas including corporate
governance, community relations, diversity, employee relations, environment, human
rights, product, alcohol, gambling, military contracting, nuclear power and tobacco.
Following Kim et al. (2012), we construct a CSR score that includes community relations,
diversity, employee relations, environment, human rights and product areas. Specifically,
we compute a total CSR score for each firm by subtracting total concerns from the total
strengths in these six areas for the year ended 2012 (Di Giuli and Kostovetsky, 2014). We
label this measure CSR. Higher score indicates better CSR performance. In additional tests,
we employ alternative proxies for CSR performance, and consider the association between
the CSR performance in each area and the disclosure tone of earnings announcements.
3.2.3 Model. To formally test our hypothesis, we use the model below:

Optimism ¼ b 0 þ b 1 CSR þ b 2 ROA þ b 3 Leverage þ b 4 BM

þ b 5 Size þ b 6 Big4 þ b 7 CG þ « (1)

where Optimism and CSR are defined above; and

CSR from KLD database 2,016

Less observations missing from Compustat database 28
Less observations missing from Audit Analytics 29
Less earnings announcement 111
Initial sample 1,848

Notes: Table I presents the data collection process. The KLD database contains data on 2,016 firms in
Table I. 2012. Of the 2,016 firms, 57 were lost after matching KLD database with COMPUSTAT and Audit
Data collection Analytics databases. Another 111 were lost after matching with annual earnings announcements. The final
process sample data consists of 1,848 observations
 ROA = the ratio of earnings before interest and tax to total assets; CSR
Leverage = total liabilities divided by total assets; performance
BM = book value of equity divided by market value of equity;
Size = natural logarithm of the market value of equity;
Big 4 = a binary variable equals to one if the auditor is Deloitte, Ernst and Young,
KPMG or PwC and 0 otherwise; and
CG = net score of KLD’s corporate governance rating.
135
Our control variables are selected on the basis of previous literature. As a firm’s financial
performance significantly drives the disclosure tone in the earnings announcement, we
include ROA to control the effect of firm’s financial performance on disclosure tone of the
earnings announcement (Rogers et al., 2011). ROA is the most commonly used variable to
measure firm performance (Davis et al., 2012). Including ROA helps control for the likelihood
that firms with good CSR likely have better financial performance[4]. We also control for the
firm’s leverage, as firms have incentives to reduce agency costs by creating a more positive
social image. Firms with higher Leverage are likely to use positive words to improve their
social image (Givoly et al., 2010; Davis and Tama-Sweet, 2012). However, firms with lower
Leverage are also likely to be more optimistic as they have lower financial risk in general.
Hence, we do not predict a sign and significance for the coefficient of Leverage. Following
Davis and Tama-Sweet (2012) and Kim et al. (2012), we include BM as the proxy for growth
options[5], Big4 for firms using one of the Big 4 auditors and Size to control for firm size. We
also include CG, a net score of KLD’s corporate governance ratings in our regressions to
capture its effect on the disclosure tone. Firms are likely to use more optimistic language
about the prospects of firms due to their growth opportunities. However, previous studies
also document that growth firms are more likely to have litigation risk and suggest that
growth firms can reduce litigation risk by moderating the optimistic tone in disclosure (Kim
et al., 2012). Given the mixture of aggressive and conservative disclosure behaviors owing to
different considerations regarding a firm’s growth opportunities and litigation risk, we do
not predict a sign for the coefficient of BM. Likewise we do not predict the sign and
significance for the coefficients associated with Big4, Size and CG. Finally, we control
industry effects to address potential bias resulting from using data across multiple
industries (Givoly et al., 2010).
Incorporating these control variables into our models helps isolate the effects of firms’
CSR performance on the positive tone of earnings announcements that is driven by
management discretion. In the model above, we expect the coefficient associated with CSR
variable ( b 1) to be significantly positive.

4. Results
4.1. Descriptive statistics
Table II reports a summary descriptive statistics for all the variables in model (1). The
sample size is 1,848. All continuous variables are winsorized at 1 and 99%. Table II shows
the mean value of Optimism is 48.75. This mean value of optimistic tone is consistent with
the level documented by Hildebrandt and Snyder (1981), Rutherford (2005) and Henry (2006).
It suggests that on average, 30% of disclosed information in financial reports is positive.
The mean value of the CSR score is 0.82. This is consistent with Cho et al. (2013) who also
report a positive score of CSR. The summary statistics for the control variables are
consistent with prior research.
Table III reports Pearson correlations for variables in model (1). A correlation coefficient
in bold indicates that the correlation is statistically significant at least at the 10 per cent
ARJ Mean SD Minimum 25th percentile Median 75th percentile Maximum
32,2
Optimism 48.75 7.07 25.05 45.445 49.4 52.635 0.88
CSR 0.82 2.39 4 1 0 1 16
ROA 0.03 0.1 0.58 0.01 0.04 0.07 0.25
Leverage 0.21 0.2 0 0.03 0.18 0.33 0.85
BM 0.45 0.31 0.23 0.22 0.4 0.64 1.39
136 Size 7.79 1.41 5.47 6.73 7.6 8.63 11.84
PE 0.82 0.39 0 1 1 1 1
Big 4 0.9 0.3 0 1 1 1 1
CG 0.08 0.54 3 0 0 0 2

Notes: Table II reports summary descriptive statistics for all the variables in Model 1. Sample size is 1,848.
Optimism is calculated as the sum of positive components (praise, satisfaction and inspiration) minus the
sum of negative components (blame, hardship and denial), scaled by the total word count of the earnings
announcements, then multiplied by 10,000; CSR is defined as total strengths minus total concerns in KLD’s
six social rating categories: community, diversity, employee relations, environment, human rights and
product; ROA is the ratio of earnings before interest and tax to total assets; Leverage is total liabilities
divided by total assets; BM is book value of equity divided by market value of equity; Size is defined as
Table II. natural logarithm of the market value of equity; Big 4 is a binary variable equals to one if the auditor is
Sample descriptive Deloitte, Ernst and Young, KPMG or PwC and 0 otherwise; CG is the net score of KLD’s corporate
statistics governance rating. All continuous variables are winsorized at 1and 99%

CSR ROA Leverage BM Size Big 4

ROA 0.1143
Leverage 0.0457 0.1343
BM 0.0292 0.0141 0.0166
Size 0.0046 0.0039 0.0449 0.213
Big 4 0.1133 0.05 0.0596 0.0045 0.0065
Table III.
CG 0.0695 0.0021 0.0411 0.0345 0.0232 0.0049
Pearson correlations
for independent Notes: Table III reports Pearson correlation for variables in Model 1. The variables are as previously
variables defined. Italic text indicate significance at least 10% level

level. With the highest correlation of 21.3 per cent between BM and Size, it is unlikely that
multicollinearity is likely to be a significant concern in our study.

4.2 Results
Table IV reports the regression results generated by Model 1. The coefficient of CSR is
positive and highly significant. The results support our hypothesis and suggest that CSR
performance is positively associated with an optimistic disclosure tone in earnings
announcements. It means that after controlling for financial performance, firms with good
CSR performance disclose their earnings using more optimistic language. Although good
CSR firms are less likely to manipulate the “hard numbers” (Kim et al., 2012), we find
that CSR firms may influence investors’ perceptions by managing the verbal component of
the earnings announcement. One interpretation is that managers may take advantage of
investors’ trust that is associated with better CSR performance and influence them through
“soft information” – the verbal component of earnings announcements. Another
interpretation is that firms with good CSR performance have better financial performance
 Optimism tone
CSR
Variables Coefficients p-value performance
CSR 0.2568 0.000
ROA 11.9473 0.000
Leverage 0.4360 0.604
BM 0.1428 0.791
Size 0.1192 0.309 137
Big4 0.0914 0.865
CG 0.4288 0.177
Constant 47.6171 0.000
Industry fixed-effects Yes
F value 7.18 Table IV.
Adjusted R2 0.045 Results for Model 1
N 1,848 examining the effect
Notes: Table IV reports regression results for the effect of firm’s CSR performance on earnings of CSR on earnings
announcement’s optimistic tone using data from 2012. The variables are as previously defined. Industry announcement tone
fixed-effects are included in the model (2012)

and, thus, are more optimistic. We can only rule out this interpretation if ROA is an
adequate proxy for financial performance[6].
Our results also show that ROA is positively related to the optimistic tone in earnings
announcements. These results are consistent with previous studies, which show firms’
economic performance significantly affects a firm’s disclosure tone (Henry, 2008; Rogers
et al., 2011; Miller, 2002; Davis et al., 2012). The coefficient on Leverage is positive but not
significant. A well-performing firm has fewer concerns about their image for the creditors as
creditors are more concerned when firms perform poorly (Guay, 2008). As more than 80 per
cent of firms in our sample data have positive earnings, capital structure is not likely to
create sufficient incentives for firms to make the tone in earnings announcements more
positive. The coefficient associated with BM is positive but not significant. Size does not
show any influence on the earnings tone, which is consistent with Rogers et al. (2011), who
show that firm size is not a significant variable in determining the disclosure tone in
earnings announcements[7].

5. Additional tests
5.1 Data from 2011
To test the robustness of the results presented in Table IV. We applied model (1) to data
from 2011. Following the same method used for the main test, we hand-collect data for the
optimistic tone in earnings announcements. We use CSR data from the year 2011, and the
financial and auditor data from the year 2012. The one-year lag between the CSR data and
the financial and auditor data ensures that CSR is measured prior to the earnings
announcement.
Using 2011 data, we find a high (59 per cent) correlation between CSR and CG[8]. Because
this creates a multicollinearity issue, we modify our measure of CSR and include the
corporate governance score from KLD in computing the CSR measure for 2011. Therefore,
the CSR variable for 2011 includes seven social rating categories: corporate governance,
community, diversity, employee relations, environment, human rights and product, which is
also widely used in prior studies (Cho et al., 2013)[9].
ARJ Table V presents the results generated by Model 1 using data from 2011. Consistent with
32,2 our main results, the coefficient on CSR is positive and significant[10].

5.2 Analysis of strengths and concerns

KLD separately rates positive indicators (strengths) and negative indicators (concerns).
Each domain of CSR strengths or CSR concerns may represent different constructs
138 (Mattingly and Berman, 2006). Following Goss and Roberts (2011) and Kim et al. (2012), we
disentangle the CSR strengths, Str and CSR concerns, Con, by examining the relationship
between the disclosure tone in earnings announcements with CSR strength ratings and CSR
concern ratings separately. Str is the sum of strengths in six CSR areas of rating and Con is
the sum of concerns in six CSR areas of rating.
The results in Table VI show that both CSR strengths and CSR concerns are positively
related to positive disclosure tone in earnings announcements using data from 2011 or 2012.
The results indicate that the higher the CSR strengths (concerns) score, the more positive the
tone in the earnings announcement. The positive association between CSR strengths and the
disclosure tone can be interpreted in the similar manner as is for the main test results
reported in Table IV. The positive association between the CSR concerns and the disclosure
tone provides some support for an opportunism interpretation as firms with CSR concerns
also use an optimistic tone. Said differently, as CSR concerns are likely related to lower
financial performance, this finding is inconsistent with the view that financial performance
is driving our main results.
Also as discussed in the previous section, firms with more CSR concerns would likely to
be more positive in their earnings announcement. As earnings announcement tone provides
opportunities for managers to affect investors’ perceptions of firm’s future performance
(Davis et al., 2012), firms with more CSR concerns are more motivated to use optimistic
language to create a positive image for its current and future performance to maintain or
increase investor confidence or even to conceal its misconducts in various ways. Our results,
reported in Table VI, indicate firms with more CSR concerns use more optimistic language

Optimism tone
Variables Coefficients p-value

CSR 0.1472 0.003

ROA 12.1399 0.000
Leverage 0.0104 0.990
BM 0.0186 0.972
Size 0.1451 0.210
Big4 0.1735 0.745
Constant 44.2428 0.000
Industry fixed-effects Yes
F value 7.72
Adjusted R2 0.045
Table V. N 1,846
Results for Model 1
examining the effect Notes: Table V reports regression results for the effect of firm’s CSR performance on earnings
announcement’s optimistic tone using data from 2011. The CSR variable for 2011 includes seven social
of CSR on earnings rating categories: corporate governance, community, diversity, employee relations, environment, human
announcement tone rights and product. The other variables are as previously defined. Industry fixed-effects are included in the
(2011) model
 CSR strengths CSR concerns
CSR
Variables Coefficients. p-value Coefficients p-value performance
Year 2012
CSR 0.2708 0.000 0.3307 0.056
ROA 11.7470 0.000 12.3749 0.000
Leverage 0.3920 0.640 0.2253 0.789
BM 0.1649 0.759 0.1215 0.822 139
Size 0.1164 0.321 0.1139 0.333
Big4 0.1222 0.820 0.1008 0.851
CG 0.4926 0.122 0.4257 0.184
Constant 47.4971 0.000 47.4322 0.000
Industry fixed- effects Yes Yes
F value 7.46 6.42
Adjusted R2 0.047 0.039
N 1,848 1,848
Year 2011
CSR 0.1736 0.007 0.3292 0.007
ROA 11.9179 0.000 12.389 0.000
Leverage 0.0592 0.944 0.0734 0.930
BM 0.0087 0.987 0.0237 0.964
Size 0.1463 0.205 0.0155 0.179
CG 0.3493 0.245 0.7298 0.004
Big4 0.0949 0.859 0.2615 0.663
Constant 48.068 0.000 47.9901 0.000
Industry fixed- effects Yes Yes
F value 7.77 7.76
Adjusted R2 0.049 0.049
N 1,846 1,846

Notes: Table VI reports the regression results of for the effect of firms’ CSR strengths and concerns on the
earnings announcement tone. CSR strengths is the sum of strengths in six CSR areas of rating, and CSR
concerns is the sum of concerns in six CSR areas of rating. The six CSR areas include community, diversity, Table VI.
employee relations, environment, human rights and product. The other variables are as previously defined. CSR strengths and
Industry fixed-effects are included in the model concerns

in their earnings announcements. This finding should be of importance and interest to

regulators and investors.

5.3 Industry
Wanderley et al. (2008) and Sweeney and Coughlan (2008) demonstrate that industry factors
can have an impact on CSR and information disclosure. We also test if the relation between
CSR performance and the disclosure tone in earnings announcements is clustered in certain
industries. According to one-digit SIC code, our sample data spans eight industries, namely,
mining, construction, manufacturing, transportation and public utilities, wholesale trade,
retail trade, finance, insurance and real estate and services and public administration[11].
Table VII provides the results on an industry-by-industry basis. Panels A and B show the
results using data from 2012 and 2011, respectively. The results show that in the
manufacturing industry, CSR performance is positively related to positive disclosure tone in
earnings announcements. The results are consistent with Cooke (1992), who shows that
because the manufacturing industry is important to the whole economy, managers in those
industries are highly motivated to disclose positive earnings and good news. The results are
 32,2
ARJ

140

Industry
Table VII.
Mining Manufacturing Transportation Retail trade Finance Services

Year 2012
CSR 0.5998 (0.071) 0.3066 (0.002) 0.3617 (0.089) 0.1081 (0.704) 0.2744 (0.149) 1.1090 (0.551)
ROA 4.8235 (0.597) 8.3074 (0.000) 43.4268 (0.002) 29.8164 (0.000) 25.8913 (0.009) 17.2630 (0.000)
Leverage 12.3264 (0.007) 2.4622 (0.097) 5.6335 (0.105) 0.4951 (0.878) 3.9240 (0.036) 2.1551 (0.196)
BM 0.5526 (0.819) 0.1502 (0.864) 2.3468 (0.238) 1.0654 (0.582) 0.3766 (0.766) 1.0420 (0.425)
Size 0.4376 (0.461) 0.2857 (0.115) 0.3239 (0.430) 0.5379 (0.253) 0.2255 (0.400) 0.0904 (0.743)
Big4 0.0514 (0.980) 0.0579 (0.948) 0.0310 (0.990) 3.2386 (0.186) 0.0376 (0.974) 0.6093 (0.656)
CG 1.4511 (0.159) 1.0272 (0.041) 2.3460 (0.127) 3.5185 (0.236) 0.1335 (0.849) 0.7570 (0.311)
Constant 45.5156 (0.000) 45.5020 (0.000) 49.7132 (0.000) 44.1502 (0.000) 49.0286 (0.000) 47.386 (0.000)
F value 2.77 6.20 2.30 2.78 1.98 4.08
Adjusted R2 0.1186 0.0508 0.0530 0.0895 0.0164 0.0704
N 93 681 164 128 413 286
Year 2011
CSR 0.7318 (0.102) 0.2116 (0.023) 0.2956 (0.218) 0.2817 (0.231) 0.0806 (0.639) 0.2184 (0.175)
ROA 6.5850 (0.527) 9.6395 (0.000) 39.0052 (0.011) 32.3170 (0.000) 22.8091 (0.013) 11.6607 (0.006)
Leverage 14.2585 (0.001) 0.8667 (0.552) 4.8637 (0.152) 1.3162 (0.676) 3.8868 (0.036) 1.9935 (0.253)
BM 0.8450 (0.727) 0.0215 (0.979) 1.9981 (0.289) 0.1697 (0.922) 0.5312 (0.673) 0.5500 (0.681)
Size 0.2934 (0.607) 0.2517 (0.153) 0.3878 (0.336) 0.8716 (0.056) 0.1437 (0.594) 0.1918 (0.496)
Big4 0.5587 (0.790) 0.0821 (0.925) 0.3627 (0.867) 1.0239 (0.690) 0.2368 (0.833) 1.8176 (0.193)
CG 11.6940 (0.020) 0.6305 (0.725) 0.0451 (0.990) 3.7759 (0.393) 8.6793 (0.016) 0.2230 (0.939)
Constant 32.3766 (0.000) 45.9062 (0.000) 51.1323 (0.000) 44.5088 (0.000) 38.7578 (0.000) 45.6832 (0.000)
F value 2.65 7.42 1.54 3.37 2.53 2.21
Adjusted R2 0.1129 0.0611 0.0214 0.1170 0.0250 0.0315
N 92 691 173 126 418 261

Notes: Table VII reports the regression results of for the effect of firms’ CSR performance on the earnings announcement tone for different industries in the years
2012 and 2011. CSR is defined as total strengths minus total concerns in KLD’s six social rating categories: community, diversity, employee relations,
environment, human rights and product. The other variables are as previously defined. P-values are in parentheses
also consistent with Boutin-Dufresne and Savaria (2004) who conclude that the nature of CSR
business activities varies across industries. performance
6. Conclusion
Although previous studies find that CSR-conscious firms are less likely to conduct
earnings management (the numeric component of earnings announcements), these
studies do not preclude the possibility that they manage investors’ perspective of the 141
firm’s performance via the non-numeric (i.e., verbal) component in the earnings
disclosure. Our research examines the relationship between CSR performance and
earnings announcement tone using the US data. Our results show that CSR
performance is positively associated with the optimistic tone in earnings
announcements. Our findings are consistent with two alternative interpretations. First,
even though CSR-conscious firms are unlikely to engage in earnings management, they
may engage a more subtle form of impressions management, i.e. tone management.
Second, firms with better CSR performance may have better financial performance and
are, thus, more confident and optimistic, resulting in a more positive tone in their
earnings announcements. As we control for the financial performance (ROA) and find a
positive relation between CSR concerns and optimism in earnings announcements, we
favor the previous explanation. However, we acknowledge that the latter explanation
cannot be completely ruled out. Another limitation relates to our finding that both CSR
strength and
CSR concerns are positively related to disclosure tone. While we offer some possible
explanations for this seemingly contradictory set of results in Section 5.2, we do not test
these explanations empirically. We leave a more thorough examination of the separate
effects of CSR strengths and CSR concerns on disclosure tone to future research.
We contribute to the literature by showing that CSR performance is associated with the
disclosure tone in earnings announcements. Previous research shows that socially
responsible firms are less likely to practice earnings management, thereby delivering more
transparent and reliable financial information (Kim et al., 2012). Our findings show that
socially responsible firms produce earnings announcements with more positive tone, which
suggests that even those firms that are labelled in the literature as being more ethical (Kim
et al., 2012) can act opportunistically. As a result, our findings should be of interest to
investors and regulators as well as academics.

Notes
1. We use the KLD database because it is currently the most widely used and comprehensive
information source for CSR research (Graves and Waddock, 1994; Turban and Greening, 1996;
Waddock, 2003). Although the CSR measurement has been challenged by previous literature
(Carroll, 1979; Graves and Waddock, 1994; Wokutch and McKinney, 1991) given the vague
boundary and complexity of CSR, the KLD database has been deemed “the de facto research
standard at this moment” and “the best currently available to scholars” (Waddock, 2003, pp. 369-
371). Also given the difficulty in measuring multidimensional CSR performance, the KLD
database contains both “strengths” and “concerns” measure for each CSR dimension issues,
which effectively reflects the traits of both positive and negative CSR behaviors. Therefore,
following previous studies (Kim et al., 2012; Giuli and Kostovetsky, 2014; Cahan et al., 2015), we
conduct the same aggregation of the measures (e.g., strength scores minus concern scores) to
create a CSR-item score.
2. We also use data from 2011 to test the robustness of the results.
ARJ 3. We use Optimism as the dependent variable, because it considers both positive and negative
32,2 components of an earnings announcement (Davis et al., 2012). Compared to Positive tone and Net
tone, the alternative measurements of earnings announcement tone, Optimism is a better
measurement.
4. Considering that relationship between a firm’s financial performance and earnings
announcement tone can potentially be nonlinear, we also run the test with ROA2 included in
142 model 1. Our untabulated results show that CSR remains positively associated with the earnings
announcement tone with a p-value of 0.003. However, we do not report the regression results
because including ROA2 into Model 1 leads to multicollinearity issue as the correlation between
ROA and ROA2 is -62.5% at 1% significance level. We also include ROE, defined as net profit
after tax divided by total equity, into the regression instead of ROA, as a proxy for firm’s
financial performance, and the results remain robust.
5. Another potential proxy for future performance is ROAtþ1. However considering ROAtþ1 is the
actual financial performance for year tþ1 rather than a market expectation at time t, we include
BM to proximate a firm’s growth prospects rather the ROAtþ1.
6. To test the robustness of our results, we consider two alternative proxies for optimistic tone of
earnings announcements. First, following Henry (2006), we choose 118 key positive words that
show positive tone of the verbal components disclosed in the earnings announcements.
Following Rogers et al. (2011), we construct the first alternative measure of positive tone, the
Positive tone. The positive tone of an earnings announcement is calculated as the total number
of positive words divided by total number of words in the earnings announcement. Second,
following Henry (2008), we construct the second alternative measure of positive tone by using
Net tone. Net tone is calculated as positive words minus negative words. We have 93 key
negative words which show negative tone in the verbal components disclosed in the earnings
announcements. The untabulated results indicate that CSR performance is significantly
positively associated with both Positive tone and Net tone, and thus confirm the results
presented in Table IV. To examine whether our results are also robust to alternative measures
of CSR scores, we calculate alternatives CSR1 and CSR2 to replace CSR as the dependent
variables. CSR1 is measured as total strengths minus total concerns in KLD’s five social rating
categories including community, diversity, employee relations, environment, and human rights
(Chatterji et al., 2009). Following Kim et al. (2012), we exclude the KLD human rights category
and compute CSR2 as total strengths minus total concerns in KLD’s four social rating
categories including community, diversity, employee relations and environment. Out
untabulated results show that both CSR1 and CSR2 are positively related to firms’ optimistic
tone of earnings announcement.
7. Because it has been well established within the literature that there is a positive association
between CSR performance and a firm’s financial performance, and a positive association
between a firm’s financial performance and earnings announcement tone, we conduct an
additional test specifically to examine whether the positive association between CSR
performance and disclosure tone is due to solely a firm’s financial performance. As our hand-
collected data contain only earnings announcements that were disclosed after CSR performance
was disclosed, the influence of CSR performance on the disclosure tone of earnings
announcements can only be one-way, rather than reverse or two-way. Given this, we conduct a
Sobel–Goodman mediation test to examine the proportion of the influence a firm’s CSR
performance on a firm’s earnings announcement tone that is due to a firm’s financial
performance. Our results show that the mediation effect of a firm’s financial performance is
statistically significant with approximately 21.3% of the total effect of CSR performance on a
firm’s earnings announcement tone being mediated. This in turn means that 78.7% of the total
effect of CSR performance on a firm’s earnings announcement tone is not carried by a firm’s
financial performance. The results confirm that CSR performance has an effect on the
disclosure tone in earnings announcements after accounting for the influence of firm financial
performance.
 8. We find it interesting that the correlation between CG and CSR varies between years; however, CSR
we do not focus on the correlation variations in this study. performance
9. As the correlation between ROA and ROA2 is -61.9% at 1% significance level, we do not include
ROA2 into the regression.
10. To make the results comparable, we also conduct a test using the CSR measure that includes the
CG component for 2012, and find the results are consistent.
143
11. We do not test the relation between CSR performance and the disclosure tone in earnings
announcements for the construction industry, with observations of 30 in 2012 (30 in 2011), and
the wholesale trade industry, with observations of 53 in 2012 and (55 in 2011) owing to the small
sample size.

References
Atkins, B. (2006), “Is corporate social responsibility responsible?”, Forbes, available at: www.forbes.com/
2006/11/16/leadership-philanthropy-charity-lead-citizen-cx_ba_1128directorship.html (accessed
21 November 2015).
Boutin-Dufresne, F. and Savaria, P. (2004), “Corporate social responsibility and financial risk”, The
Journal of Investing, Vol. 13 No. 1, pp. 57-66.
Carroll, A.B. (1979), “A three-dimensional conceptual model of corporate performance”, Academy of
Management Review, Vol. 4 No. 4, pp. 497-505.
Chatterji, A., Levine, D. and Toffel, M. (2009), “How well do social ratings actually measure corporate
social responsibility?”, Journal of Economics and Management Strategy, Vol. 18 No. 1,
pp. 125-169.
Cheng, B., Ioannou, I. and Serafeim, G. (2014), “Corporate social responsibility and access to finance”,
Strategic Management Journal, Vol. 35 No. 1, pp. 1-23.
Cho, S.Y., Lee, C. and Pfeiffer, R.J. (2013), “Corporate social responsibility performance and information
asymmetry”, Journal of Accounting and Public Policy, Vol. 32 No. 1, pp. 71-83.
Davis, A.K. and Tama-Sweet, I. (2012), “Managers’ use of language across alternative disclosure
outlets: earnings press releases versus MDandA*”, Contemporary Accounting Research, Vol. 29
No. 3, pp. 804-837.
Davis, A.K., Piger, J.M. and Sedor, L.M. (2012), “Beyond the numbers: measuring the information
content of earnings press release language*”, Contemporary Accounting Research, Vol. 29 No. 3,
pp. 845-868.
Dhaliwal, D.S., Li, O.Z., Tsang, A. and Yang, Y.G. (2011), “Voluntary nonfinancial disclosure and the
cost of equity Capital: the initiation of corporate social responsibility reporting”, The Accounting
Review, Vol. 86 No. 1, pp. 59-100.
Dhaliwal, D.S., Radhakrishnan, S., Tsang, A. and Yang, Y.G. (2012), “Nonfinancial disclosure and
analyst forecast accuracy: international evidence on corporate social responsibility disclosure”,
The Accounting Review, Vol. 87 No. 3, pp. 723-759.
Di Giuli, A. and Kostovetsky, L. (2014), “Are red or blue companies more likely to go green? Politics
and corporate social responsibility”, Journal of Financial Economics, Vol. 111 No. 1,
pp. 158-180.
DuCharme, L.L., Malatesta, P.H. and Sefcik, S.E. (2004), “Earnings management, stock issues, and
shareholder lawsuits”, Journal of Financial Economics, Vol. 71 No. 1, pp. 27-49.
Durnev, A. and Mangen, C. (2011), “The real effects of disclosure tone: Evidence from restatements”,
Available at SSRN 1650003.
ARJ Epstein-Reeves, J. (2010), “Consumers overwhelmingly want CSR”, Forbes, available at: www.forbes.
com/sites/csr/2010/12/15/new-study-consumers-demandcompanies-implement-csr-programs/
32,2 (accessed 20 May 2016).
Feldman, R., Govindaraj, S., Livnat, J. and Segal, B. (2010), “Management’s tone change, post-earnings
announcement drift and accruals”, Review of Accounting Studies, Vol. 15 No No. 4, pp. 915-953.
Files, R., Swanson, E. and Tse, S. (2009), “Stealth disclosure of accounting restatements”, The
Accounting Review, Vol. 84 No. 5, pp. 1495-1520.
144
Fombrun, C. and Shanley, M. (1990), “What’s in a name? Reputation building and corporate strategy”,
Academy of Management Journal, Vol. 33 No. 2, pp. 233-258.
Fritzsche, D.J. (1991), “A model of decision-making incorporating ethical values”, Journal of Business
Ethics, Vol. 10 No. 11, pp. 841-852.
Givoly, D., Hayn, C.K. and Katz, S.P. (2010), “Does public ownership of equity improve earnings
quality?”, The Accounting Review, Vol. 85 No. 1, pp. 195-225.
Goss, A. and Roberts, G.S. (2011), “The impact of corporate social responsibility on the cost of bank
loans”, Journal of Banking and Finance, Vol. 35 No. 7, pp. 1794-1810.
Griffin, J.J. and Mahon, J.F. (1997), “The corporate social performance and corporate financial
performance debate twenty-five years of incomparable research”, Business and Society, Vol. 36
No. 1, pp. 5-31.
Hales, J., Kuang, X. and Venkataraman, S. (2011), “Who believes the hype? An experimental
examination of how language affects investor judgements”, Journal of Accounting Research,
Vol. 49 No. 1, pp. 223-255.
Hemingway, C.A. and Maclagan, P.W. (2004), “Managers’ personal values as drivers of corporate social
responsibility”, Journal of Business Ethics, Vol. 50 No. 1, pp. 33-44.
Henry, E. (2006), “Market reaction to verbal components of earnings press releases: event study using a
predictive algorithm”, Journal of Emerging Technologies in Accounting, Vol. 3 No. 1, pp. 1-19.
Henry, E. (2008), “Are investors influenced by how earnings press releases are written?”, Journal of
Business Communication, Vol. 45 No. 4, pp. 363-407.
Hildebrandt, H.W. and Snyder, R.D. (1981), “The pollyanna hypothesis in business writing: initial
results, suggestions for research”, Journal of Business Communication, Vol. 18 No. 1, pp. 5-15.
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and
ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
Kim, Y., Park, M.S. and Wier, B. (2012), “Is earnings quality associated with corporate social
responsibility?”, The Accounting Review, Vol. 87 No. 3, pp. 761-796.
KLD Research and Analytics, Inc. (KLD) (2006), Getting Started with KLD Stats and KLD’s Ratings
Definitions, KLD Research and Analytics, Boston, MA.
Lang, M.H. and Lundholm, R.J. (2001), “Voluntary disclosure and equity offerings: reducing
information asymmetry or hyping the stock?”, Contemporary Accounting Research, Vol. 17
No. 4, pp. 623-662.
Lanis, R. and Richardson, G. (2012), “Corporate social responsibility and tax aggressiveness: an
empirical analysis”, Journal of Accounting and Public Policy, Vol. 31 No. 1, pp. 86-108.
Lehavy, R., Li, F. and Merkley, K. (2011), “The effect of annual report readability on analyst following
and the properties of their earnings forecasts”, The Accounting Review, Vol. 86 No. 3,
pp. 1087-1115.
Li, F. (2008), “Annual report readability, current earnings, and earnings persistence”, Journal of
Accounting and Economics, Vol. 45 Nos 2/3, pp. 221-247.
Linthicum, C., Reitenga, A.L. and Sanchez, J.M. (2010), “Social responsibility and corporate reputation:
the case of the arthur andersen enron audit failure”, Journal of Accounting and Public Policy,
Vol. 29 No. 2, pp. 160-176.
McBarnet, D. (2005), “Human rights, corporate responsibility and the new accountability”, Human CSR
Rights and the Moral Responsibilities of Corporate and Public Sector Organisations, Springer,
New York, NY, pp. 63-80.
performance
McWilliams, A., Siegel, D.S. and Wright, P.M. (2006), “Corporate social responsibility: strategic
implications*”, Journal of Management Studies, Vol. 43 No. 1, pp. 1-18.
Mattingly, J.E. and Berman, S.L. (2006), “Measurement of corporate social action discovering taxonomy
in the kinder lydenburg domini ratings data”, Business and Society, Vol. 45 No. 1, pp. 20-46.
Miller, G.S. (2002), “Earnings performance and discretionary disclosure”, Journal of Accounting
145
Research, Vol. 40 No. 1, pp. 173-204.
Morsing, M. and Schultz, M. (2006), “Corporate social responsibility communication: stakeholder
information, response and involvement strategies”, Business Ethics: A European Review, Vol. 15
No. 4, pp. 323-338.
Moser, D.V. and Martini, P.R. (2012), “A broader perspective on corporate social responsibility research
in accounting”, The Accounting Review, Vol. 87 No. 3, pp. 797-806.
Phillips, R., Freeman, R.E. and Wicks, A.C. (2003), “What stakeholder theory is not”, Business Ethics
Quarterly, Vol. 13 No. 4, pp. 479-502.
Prior, D., Surroca, J. and Tribo, J.A. (2008), “Are socially responsible managers really ethical? Exploring
the relationship between earnings management and corporate social responsibility”, Corporate
Governance: An International Review, Vol. 16 No. 3, pp. 160-177.
Rennekamp, K.M. (2012), “Processing fluency and investors’ reactions to disclosure readability”,
Journal of Accounting Research, Vol. 50 No. 5, pp. 1319-1354.
Rogers, J.L., van Buskirk, A. and Zechman, S.L. (2011), “Disclosure tone and shareholder litigation”,
The Accounting Review, Vol. 86 No. 6, pp. 2155-2183.
Roman, R.M., Hayibor, S. and Agle, B.R. (1999), “The relationship between social and financial
performance repainting a portrait”, Business and Society, Vol. 38 No. 1, pp. 109-125.
Rutherford, B.A. (2005), “Genre analysis of corporate annual report narratives a corpus linguistics–
based approach”, Journal of Business Communication, Vol. 42 No. 4, pp. 349-378.
Shank, T., Manullang, D. and Hill, R. (2005), “Doing well while doing good revisited’: a study of socially
responsible firms’ short term versus long-term performance”, Managerial Finance, Vol. 31 No. 8,
pp. 33-46.
Tan, H.-T., Wang, Y.E. and Zhou, B. (2014), “When the use of positive language backfires: the joint
effect of tone, readability, and investor sophistication on earnings judgments”, Journal of
Accounting Research, Vol. 52 No. 1, pp. 273-302.
Tetlock, P.C., Saar-Tsechansky, M. and Macskassy, S. (2008), “More than words: quantifying language
to measure firms’ fundamentals”, The Journal of Finance, Vol. 63 No. 3, pp. 1437-1467.
Verschoor, C.C. (2005), “Is there financial value in corporate values?”, Strategic Finance, Vol. 87 No. 1,
pp. 17-18.
Waddock, S.A. and Graves, S.B. (1997), “The corporate social performance-financial performance link”,
Strategic Management Journal, Vol. 18 No. 4, pp. 303-319.
Wanderley, L.S.O., Lucian, R., Farache, F. and de Sousa Filho, J.M. (2008), “CSR information disclosure
on the web: a context-based approach analysing the influence of country of origin and industry
sector”, Journal of Business Ethics, Vol. 82 No. 2, pp. 369-378.
Zechman, S.L. (2010), “The relation between voluntary disclosure and financial reporting: evidence
from synthetic leases”, Journal of Accounting Research, Vol. 48 No. 3, pp. 725-765.

Further reading
Alexander, G.J. and Buchholz, R.A. (1978), “Corporate social responsibility and stock market
performance”, Academy of Management Journal, Vol. 21 No. 3, pp. 479-486.
ARJ Banker, R.D. and Mashruwala, R. (2007), “The moderating role of competition in the relationship
between nonfinancial measures and future financial performance”, Contemporary Accounting
32,2 Research, Vol. 24 No. 3, pp. 763-793.
Barnett, M.L. (2007), “Stakeholder influence capacity and the variability of financial returns to
corporate social responsibility”, Academy of Management Review, Vol. 32 No. 3, pp. 794-816.
Barnett, M.L. and Salomon, R.M. (2006), “Beyond dichotomy: the curvilinear relationship between social
responsibility and financial performance”, Strategic Management Journal, Vol. 27 No. 11,
146 pp. 1101-1122.
Brown, W., Helland, E. and Smith, J. (2006), “Corporate philanthropic practices”, Journal of Corporate
Finance, Vol. 12 No. 5, pp. 855-877.
Chen, L., Feldmann, A. and Tang, O. (2015), “The relationship between disclosures of corporate social
performance and financial performance: evidences from GRI reports in manufacturing
industry”, International Journal of Production Economics, Vol. 170, pp. 445-456.
DeFond, M.L. and Subramanyam, K. (1998), “Auditor changes and discretionary accruals”, Journal of
Accounting and Economics, Vol. 25 No. 1, pp. 35-67.
Edmans, A. (2011), “Does the stock market fully value intangibles? Employee satisfaction and equity
prices”, Journal of Financial Economics, Vol. 101 No. 3, pp. 621-640.
Frooman, J. (1997), “Socially irresponsible and illegal behavior and shareholder wealth a Meta-analysis
of event studies”, Business and Society, Vol. 36 No. 3, pp. 221-249.
Gong, G., Li, L.Y. and Xie, H. (2009), “The association between management earnings forecast errors
and accruals”, The Accounting Review, Vol. 84 No. 2, pp. 497-530.
Healy, P.M. and Wahlen, J.M. (1999), “A review of the earnings management literature and its
implications for standard setting”, Accounting Horizons, Vol. 13 No. 4, pp. 365-383.
Hong, H. and Kacperczyk, M. (2009), “The price of sin: the effects of social norms on markets”, Journal
of Financial Economics, Vol. 93 No. 1, pp. 15-36.
Kato, K., Skinner, D.J. and Kunimura, M. (2009), “Management forecasts in japan: an empirical study
of forecasts that are effectively mandated”, The Accounting Review, Vol. 84 No. 5,
pp. 1575-1606.
Kim, I. and Venkatachalam, M. (2011), “Are sin stocks paying the price for accounting sins?”, Journal of
Accounting, Auditing and Finance, Vol. 26 No. 2, pp. 415-442.
Lev, B., Petrovits, C. and Radhakrishnan, S. (2010), “Is doing good good for you? Yes, charitable
contributions enhance revenue growth”, Strategic Management Journal, Vol. 31 No. 2,
pp. 182-200.
Levin, I.P., Schneider, S.L. and Gaeth, G.J. (1998), “All frames are not created equal: a typology and
critical analysis of framing effects”, Organizational Behavior and Human Decision Processes,
Vol. 76 No. 2, pp. 149-188.
Lin, K.J., Piotroski, J.D., Yang, Y.G. and Tan, J. (2012), “Voice or exit? Independent director decisions in
an emerging economy”, available at SSRN: http://ssrn.com/abstract=2166876
Marcia, M.C., Otgontsetseg, E. and Hassan, T. (2014), “Corporate social responsibility and its impact on
financial performance: Investigation of US Commercial banks”, Working paper.
Orlitzky, M., Schmidt, F.L. and Rynes, S.L. (2003), “Corporate social and financial performance: a Meta-
analysis”, Organization Studies, Vol. 24 No. 3, pp. 403-441.
Patten, D.M. (1992), “Exposure, legitimacy, and social disclosure”, Journal of Accounting and Public
Policy, Vol. 10 No. 4, pp. 297-308.
Petrovits, C.M. (2006), “Corporate-sponsored foundations and earnings management”, Journal of
Accounting and Economics, Vol. 41 No. 3, pp. 335-362.
Roberts, P.W. and Dowling, G.R. (2002), “Corporate reputation and sustained superior financial
performance”, Strategic Management Journal, Vol. 23 No. 12, pp. 1077-1093.
Rogers, J.L. and Stocken, P.C. (2005), “Credibility of management forecasts”, The Accounting Review, CSR
Vol. 80 No. 4, pp. 1233-1260.
performance
Rogers, J.L. and van Buskirk, A. (2009), “Shareholder litigation and changes in disclosure behavior”,
Journal of Accounting and Economics, Vol. 47 Nos 1/2, pp. 136-156.
Simpson, W.G. and Kohers, T. (2002), “The link between corporate social and financial performance:
evidence from the banking industry”, Journal of Business Ethics, Vol. 35 No. 2, pp. 97-109.

Corresponding author
147
Yu Lu can be contacted at: luyu@btbu.edu.cn

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com