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Article
Publication date: 4 July 2016

Bilal Fayiz Omar and Nidal Omar Zallom

This study aims to investigate the relationship between different themes of corporate social responsibility (CSR) and companies’ market value (measured by Tobin Q) for Jordanian…

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Abstract

Purpose

This study aims to investigate the relationship between different themes of corporate social responsibility (CSR) and companies’ market value (measured by Tobin Q) for Jordanian firms listed on the Amman Stock Exchange (ASE) for the period 2006-2010.

Design/methodology/approach

The annual reports of 26 companies on the ASE for the years 2006-2010 were selected for this study. Three industrial sectors were chosen: chemical; food and beverage; and pharmaceutical and medical (P&M). The CSR is measured by constructing an index consisting of four themes which are as follows: environmental 9 items; human resources 16 items; community 7 items; and products 7 items. The study adopts Tobin Q as the dependent variable to measure the market value of corporations. Two control variables were included in the regression analysis for their possible effects on the CSR and company’s market value relationship: size and leverage. This study performs a multiple regression analysis model to test the effect of the four CSR themes: environmental, human resources, community and products on the market value measured by Tobin Q.

Findings

The results revealed that environmental, community and product activities decreased market value in the food and beverage industry, while human resources activities had no effect on market value in the same industry. Moreover, the community theme was found to have a negative effect on market value in the P&M industry, while the three other themes were found to have no effect on market value in the same industry. The four themes had no effect on market value in the chemical industry.

Research limitations/implications

The current study has a number of limitations, which have implications for future research. First, the study focused only on three industrial sectors (chemical, food and beverage and P&M), which limited the results to only these industries. In addition, the CSR concept and its effect on profitability is an important issue for the financial and services sectors. Hence, it would be beneficial to investigate the CSR impact on profitability for the financial and services sectors. Moreover, the study focused only on one country, Jordan. An extension of this study could be a comparison of the CSR effect on financial performance between Jordan and other countries in the Middle East. Furthermore, the measurement of CSR is subject to criticism because it might generate bias according to subjective judgments about CSR items. The CSR items are equally weighted, which might not be acceptable because their nature and effect differ among industries. However, introducing qualitative measures for CSR that reflect various perspectives about CSR practices and implications is essential. Finally, the period chosen for this study includes the years of global financial crisis as well which had eroded the market value of many firms in different industries, and this may form a prominent limitation of this study.

Practical implications

The results of this study have given evidence of the role of CSR in Jordan. The investments in the CSR field could negatively affect or could have no effect on market value. Overall, regulators in Jordan should pay attention to the costs and benefits of CSR among companies. Companies will be encouraged to invest in CSR activities if the benefits on their financial performance exceed the costs (cost-benefit theory). Specifically, companies should select types of CSR activities that enhance their competiveness in the society.

Social implications

The results of this study provide practical implications to several users in the chemical, food and beverage and P&M industries. Managers, investors and other users may pay attention to the impact of CSR strategies on the company’s market value. For example, food and beverage managers may decrease their CSR investments around environmental, community and product activities because these decrease the market value and profitability of the company. However, the CSR investment in human resources does not affect the profitability in this industry. For the chemical industry, managers may not focus on CSR investments in the different activities (environmental, human resources, community and products) because these have no impact on the company’s market value. In regards to the P&M industry, managers may decrease their CSR investments around community activities because this decreases the market value. However, managers may not be concerned with CSR investments in environmental, human resources and products activities because these do not affect the company’s market value.

Originality/value

The relationship between CSR and a company’s financial performance has been tested broadly in the financial and management fields without any conclusive results. Some explanations for the inconclusive results are discussed. Inoue and Lee (2011, p. 791) noted three main issues that remain unresolved in the studies regarding the relationship between CSR and a company’s performance: using samples for different industries, using cross sectional observations and using aggregate CSR dimensions. The current study overcomes the main problems in the previous discussion. In particular, the study will focus on specific industries (chemical, food and beverage and P&M). In addition, the study will use multidimensional CSR measures. Moreover, financial performance will be measured by a single measure (market value) instead of using different measures of financial performance.

Details

Journal of Financial Reporting and Accounting, vol. 14 no. 1
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 2 March 2022

Hani Alkayed and Bilal Fayiz Omar

This study aims to investigate the determinants of the extent and quality of corporate social responsibility disclosure (CSRD) in Jordan. The study examines a number of factors…

1500

Abstract

Purpose

This study aims to investigate the determinants of the extent and quality of corporate social responsibility disclosure (CSRD) in Jordan. The study examines a number of factors that influence the extent and quality of CSR disclosure, such as corporate characteristics, corporate governance and ownership structure.

Design/methodology/approach

A quantitative approach and a content analysis technique is used to measure the extent and quality of CSRD from annual reports. The sample is drawn from the annual reports of 118 Jordanian companies between 2010 and 2015. A CSRD index is constructed, which includes the disclosures of the following categories: environmental, human resources, product and consumers, and community involvement. This is the first study that presents a new measurement for CSR disclosure quality by using images and charts in a seven-point scale measurement.

Findings

The result reveals that the extent of CSRD is higher than quality in Jordan. Regarding the determinants of CSR disclosures, the following factors were found to have a significant relationship with both the extent and quality of CSRD: board size, non-executive directors, age of firm, foreign members on the board, number of boards meetings, the presence of audit committees, big 4, government ownership, size of firm and industry type. Non-executive directors was found to have a significant correlation with the extent of CSRD.

Research limitations/implications

The current study has some limitations; first, the study findings are limited to the Jordanian environment. Second, the study adopted a purely quantitative method, and future research could include interviews and questionnaires to gather data from financial managers and chief executive officers (CEOs). Third, the potential influences on the level and quality of CSR are not limited to the variables tested in this study. Future research can be done on new determinants, such as CEO interlocking and profitability. Finally, the sample included companies from two main sectors – the services and industrial sectors; thus, this limited the results to these two main sectors.

Practical implications

Practitioners, as firms, should develop new strategies and ensure that CSR is included in their reports. Thus, companies can achieve legitimacy for their products and activities. Policymakers must consider introducing new laws that mandate CSRDs since it has many advantages for companies and society. In addition, this research suggests amending the law to require companies to have 33% of their directors be non-executives since this will remove the negative effect on CSR disclosure. Investors must pay attention to the social activities of the companies they invest in, as CSR could have a positive effect on their market value.

Social implications

The study has indicated that Jordanian companies became increasingly more involved in CSR activities, as this growth in CSRD is linked with global increases in CSR. Moreover, the study has revealed that the highest category of CSR disclosures is related to products or services and employee information. On the other hand, the lowest category of CSR disclosures is related to community and other disclosures (extent) and environmental disclosures (quality). Furthermore, the results show that the services sector was found to have more disclosures regarding employees and community, whereas the industrial sector was more concerned about environmental and product information.

Originality/value

To the best of the authors’ knowledge, this is the first study that presents a new measurement for CSR disclosure quality by using images and charts in a seven-point scale measurement. This new seven-point scale will be adopted to distinguish between poor and excellent disclosures. In addition, to the best of the authors’ knowledge, this is the first study in Jordan which examines the determinants of the extent and the quality of CSR for three categories, namely, corporate characteristics, corporate governance and ownership structure.

Details

Journal of Financial Reporting and Accounting, vol. 21 no. 5
Type: Research Article
ISSN: 1985-2517

Keywords

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