In this article, we examine the empirical association between corporate social responsibility (CSR) and information asymmetry by investigating their causal, simultaneous, and endogenous effects. Employing a large and extensive U.S. sample during 1991-2010, we find an
inverse association between CSR engagement and the level of information asymmetry after controlling for various firm characteristics. Based on the simultaneous equation approach, we further find that CSR activities reduce information asymmetry more than information asymmetry decreases CSR activities. Furthermore, after controlling for endogeneity based on dynamic panel generalized method of moment (GMM), we still find an inverse relation between CSR engagement and information asymmetry. We interpret these results to support the stakeholder-theory based information-asymmetry-reduction explanation that considers CSR engagement as a vehicle to reduce asymmetric information between managers and noninvesting stakeholders, but not the agency-theory based over-investment hypothesis that views CSR as a waste of valuable resources at the cost of shareholders and considers firm’s CSR engagement making information environment more opaque.
Keywords: Corporate social responsibility. Information asymmetry. Stakeholder theory. Over-investment
