The relationship between corporate social responsibility disclosure and financial performance of Russian companies

INTRODUCTION 4
CHAPTER 1: THEORETICAL ASPECTS OF CORPORATE SOCIAL RESPONSIBILITY 7
1.1 The concept of corporate social responsibility 7
1.2 Approaches to measuring corporate social responsibility 12
1.3 The relationship between CSR and financial performance 14
1.4 Peculiarities of CSR in Russia 18
1.5 Hypotheses statement 22
CHAPTER 2: EMPIRICAL ASSESSMENT OF RELATIONSHIP BETWEEN CSR
DISCLOSURE AND CORPORATE PERFORMANCE 25
2.1 Sample 25
2.2 Research methodology 26
2.3 Variables' description and data collection technique 28
2.4 Descriptive statistic 33
2.5 Regression models' estimation 36
2.5.1 Correlation analysis 36
2.5.2 Ohlson model estimation 37
2.5.3 Estimation of basic CSR index 38
2.5.4 Estimation of extended CSR index 41
2.5.5 Estimation of models with control variables 42
2.5.6 Estimation of report's type impact 44
2.5.7 Industrial analysis 45
2.6 Managerial applications 47
CONCLUSION 49
APPENDIXES 51
Appendix 1 List of companies included in the sample 51
Appendix 2 Distribution of level of disclosure of basic index 54
Appendix 3 Distribution of level of disclosure of extended index 55
Appendix 4 Distribution of levels of disclosure of all indicators 56
REFERENCES 57
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It is well-known that the main goal of any business is to make money and increase the wealth of its shareholders. But nowadays the mindset is changing, and wealth maximization is already not the only obligatory aspect. It is supposed that firms should contribute to the well-being of society through voluntary efforts. For this reason, apart from main operational processes, many companies spend time and money on social and ecological activities. If initially, it was considered that such activities stem from the realm of morality and business ethics and may impact only the prestige and the company's perception by external stakeholders, several decades ago, researchers began investigating whether corporate social responsibility (hereafter CSR) disclosure can lead to economic outcomes. Providing of CSR disclosure either as separate report or as the part of integrated report is the main way of influence on market performance indicators.
The question of CSR disclosure value relevance aroused the interest of researchers and practitioners and gave rise to various theories on this subject. On the one the formation and evolution of stakeholder theory and its instrumental aspects in particular has provided the foundation that CSR can help in building and solidifying trusting relationships with a variety of constituents (employees, consumers, local communities, environmental activists and concerned citizens among many others) that are important to the firm's long-term success and financial standing. According to this approach it is important for companies to invest in such activities and provide results to the stakeholders.
On the other hand, CSR activities are mainly not connected directly with core firm's activities and even might restrict some business processes and as a result limit the possibilities for future growth. It leads researchers to the opinion that CSR imposes an unjustified and fundamentally undemocratic taxation on shareholders, that its implementation costs outweigh any potential tangible benefits and that due to this, it constitutes a misallocation and misappropriation of valuable company resources. As a result, the positive contribution of CSR disclosure to the firms' market value cannot exist.
Even though various stakeholders (investors, clients, regulators, employees, etc.) demand greater transparency of companies' CSR activities, and CSR disclosure is gradually becoming an integral part of annual reports, the exact answer to the question of whether there is a relationship between CSR disclosure and market prices still does not exist. Researches conducted in this field do not provide definite position and sometimes even have opposite results. Such kind of discrepancy arises from lack of common understanding of CSR activities and approaches to its estimation as well as various research designs. So, the topic has a high potential for the contribution to the theoretical basis in the field.
From practitioners' point of view it is also important to understand the relationship between CSR disclosure and share price performance. We can identify at least two areas where this understanding might be useful: preparation of integrated reports and investment decision making. As for investment decision making managers should understand what return will give available projects. In case with some environmental and/or social projects or programs it is rather difficult to calculate because they may not generate additional cash flows. The market reaction on investing in CSR activities might be the measure of return of such projects and as a result become the basic line for decision making process. Speaking about preparation of integrated reports it is important to mention that it consists of many blocks of different information, has obligatory and voluntary parts. However, these blocks might have the different value relevance for the market. Moreover, the value relevance might differ depending on firm's industry. Understanding of such pattern may help managers to create the efficient way of report preparation: they can understand what block they should focus on, in what type of information investors are interested in, what voluntary disclosure is valuable and what one is not worth the efforts because it is not create any additional value. So, it can be seen that the understanding of relationship between CSR disclosure and share price performance can help managers to allocate resources to the projects and plan the working process in the most efficient way.
Research goal of this study: To determine the relationship between CSR disclosure and firms’ market value.
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