Corporate social responsibility and managerial accounting: a stakeholder perspective.

During the last decades, the interest in and importance of Corporate Social Responsibility (CSR) have grown dramatically, both within business as within the academic world. Whereas CSR studies in fields such as marketing, management, supply chain research and finance have been booming, accounting researchers have only recently rediscovered CSR as a theoretically important and socially relevant domain, offering many opportunities for research (Birnberg 2009). In this dissertation, I present three empirical studies. Each of these studies experimentally examines the impact of specific accounting or control systems on CSR behavior in firms aims to inform both academic research and practice.

This chapter studies the behavior of preparers and users of sustainability reports in an experimental market and examines under what conditions CSR survives in markets. Prior studies have shown that managers tend to have CSR preferences and that sustainability reporting influences investors’ valuation (Elliott et al. 2014; Cheng, Green, and Ko 2015). However, these studies do not examine CSR in a competitive market. It has been argued that markets may potentially erode social responsibility (Brandts, Riedl, and Van Winden 2009; Falk and Szech 2013; Roth et al. 1991; Shleifer 2004). Research by Bartling, Weber, and Yao (2015) shows, however, that consumers in markets still value CSR-related efforts by their sellers.

Our study more specifically examines the influence of assurance on incentives on CSR in markets. We argue that assurance of sustainability reporting affects economic outcome, particularly when markets offer incentives for the preparers, which can create social expectations for CSR investments among market participants. Consistent with this theory, results show that when assurance is combined with incentives, preparers invest more in CSR and users tend to price these investments. We manipulate whether assurance of sustainability reporting is present or absent and whether preparers receive incentives for their CSR investments. In our experiment, we create markets of four sellers and four buyers. In addition to price offers, sellers, as preparers of sustainability reports, provide sustainability reports disclosing how much they invest in corporate giving (our proxy for CSR investment). These disclosures can deviate from actual corporate giving. Buyers, as users, select their sellers using this information.

Consistent with our predictions, results show that sellers, as preparers of the sustainability reports, make more accurate disclosures about their CSR investments when sustainability reports are assured. Results further show that preparers tend to invest more in CSR (willingness to donate) when assurance of their reporting behavior is present, but only when markets provide incentives for CSR investments. We also find that buyers, as users of these reports, respond to CSR. They are willing to pay higher prices when preparers’ sustainability reports are assured and when preparers receive incentives for their CSR investments. Additional analyses show that these economic effects can be attributed to the sustainability reporting by the preparers.

In the second chapter, we start from the prevalent insight that investors are often exposed to significant sustainability risk when contracting with other firms. When such firms do not provide effort to reduce sustainability risk, this can have detrimental effects for their investors. In this study, we examine how the time horizon of the realization of sustainability targets influences firms’ effort to reduce sustainability risk, and in turn how it affects investors’ willingness to invest. We presume that firms’ sustainability effort and investors’ investments will be lower when the outcomes of sustainability targets realize within a longer time period than when they realize within a short time period. We also raise the question whether the presence of sustainability incentives in the firm in which the investor invests can mitigate these effects.

To test our hypotheses, we use a multi-period investment game with a 2 x 2 between-subjects design in which an investor can invest money in a firm that can generate a potential return. Whether the investor can retrieve his return depends on whether the firm stays below a sustainability target. We manipulate whether sustainability incentives are provided within the firm or not (sustainability incentives condition versus no sustainability incentives condition), and whether the time horizon of the realization of sustainability targets (i.e., whether the firm has stayed below an emission standard) have a short time horizon (outcome realizes within one period) or a long time horizon (outcome realizes over three periods).

Results show an effect reversal of time horizon on firms’ effort in the absence of sustainability incentives compared to in the presence of incentives, indicating that in the absence of incentives, less effort is spent on targets that realize over a long time period, but that the effect strongly reverses when incentives are present. We also find that in the absence of sustainability incentives, investors also shun away investments more when outcome realizations have a long time horizon relative to when they have a short time horizon. In the presence of sustainability incentives, we do not find an effect of time horizon on investments.

The third chapter studies how employees make the tradeoff between spending working time on socially-oriented activities at the expense of their regular job responsibilities, and under what circumstances employees use available slack in a positive way instead of using it opportunistically. In order to stay sustainable, pursuing social goals is becoming increasingly important for firms. This often translates into socially-oriented activities performed by employees during working hours (e.g. corporate volunteering programs). Even though firms may foster these activities, pursuing social goals often gets in the way of employees reaching their targets. The question arises, under what circumstances employees direct their effort from regular, performance-oriented tasks towards socially-oriented activities that the firm also values.

In order to examine this trade-off between socially-oriented and performance-oriented tasks, I adapt the real effort budget negotiation experiment of Fisher et al. (2000). In my experiment, employees have the opportunity to allocate part of their working time to a socially-oriented task, in addition to their performance-oriented task for which a budget is set. I manipulate whether or not managers can monitor the employee’s allocation of working time and whether or not performance on the social task is profitable for the manager. Results show that when monitoring is absent, employees follow their own preferences and are less willing to spend time on socially-oriented activities when these activities are profitable for his manager than when they are not profitable. When monitoring is present, employees anticipate the manager’s preferences and are willing to spend more time on socially oriented activities in case of profitability versus no profitability. Importantly, employees with a higher initial willingness to spend time on the social task employ more of the slack available in the final budget to spend even more time on the social task. Employees with a lower initial willingness consume available slack opportunistically.