To overstate or not to overstate Corporate Social Responsibility (CSR): What does Bayes tell us about CSR decoupling and firm value?

Abstract

This study examines the effect of corporate social responsibility (CSR) decoupling on firm value across firms that understate versus overstate CSR. We also analyze the moderating impact of a firm's regulatory environment on the relationship between CSR decoupling and firm value. Using longitudinal analysis across 20 developed countries for the period 2008–2016 and employing a Bayesian item response theory method to measure CSR performance, we find that overstating CSR increases firm value whereas understating CSR decreases firm value. Our results also show that firms that overstate their CSR saw a reduction in firm value when the regulatory environment is included as a moderator.