The influence of corporate social responsibility disclosure on share prices: Evidence from the United Kingdom

The purpose of this paper is to examine the association between share prices and the level of corporate social responsibility (CSR) disclosure of large UK companies, using CSR data from an independent firm and a time period and setting (the UK) that coincides with increased legislation and increased public awareness of corporate social and environmental issues. Against a background of increased interest by investors in CSR disclosure, prior mixed results on the association between CSR disclosure and share prices suggest the need for further research that overcome some of the identified limitations of the extant literature.

A modified Ohlson (1995) model is used to examine the relationship between CSR disclosure and share prices among the 100 largest UK companies. Three different measures of CSR disclosure are used to ensure robustness of results.

The paper finds that higher levels of CSR disclosure are associated with higher share prices. Furthermore, the paper provides evidence that CSR disclosure by companies operating in environmentally sensitive industries show a stronger association with share prices than CSR disclosure by companies operating in other industries. The paper concludes that CSR disclosure provides incremental value-relevant information to investors beyond financial accounting information.

To the best of our knowledge, this is the first paper to provide evidence of the incremental value of CSR disclosure to share price determination in the UK, a country where CSR disclosure is high on the agenda. Our findings provide evidence that CSR disclosures by companies and, in particular, disclosures following the global reporting initiative(GRI) guidelines, are useful to investors and shareholders, as it is related to share price information.