On the Nexus Between CSR Practices, ESG Performance, and Asymmetric information

The purpose of this paper is to test the relationship of CSR practices-asymmetric information and ESG performance-asymmetric information. We conjecture that there might be a particular role where the disclosure of non-financial information is deemed useful in truncating the level of asymmetric information. Using data from two different countries, Indonesia (Asia) and Portugal (Europe), we extracted 37 companies; the time period of the observation was from 2012 to 2016. To manifest the empirical test, we used CSR report (CSR_Rep), CSR committee (CSR_com), CSR assurance (CSR_ass) and GRI adoption as the proxies of CSR practices, while the proxies of ESG performance were represented by environmental (ENVscr), social (SOCscr), and governance (GOVscr) pillar scores, as obtained from Thomson Reuters ASSET4 database. The bid-ask spread was used as the surrogate indicator of asymmetric information. The empirical test revealed that only the variables GRI and SOCscr showed a negative and significant association with the bid-ask spread; whilst the remaining variables of CSR practices (CSR_rep, CSR_com, CSR_ass), and ESG performance (ENVscr and GOVscr) were negatively associated with asymmetric information (Spread) but are statistically insignificant. Our results suggested that CSR practices and ESG performance are contemporaneous and weakly associated with asymmetric information, while this association gets stronger when we run the model using lagged independent variables. We thus infer that the information on CSR reporting practices and ESG performance scores need some time lag to be fully absorbed by the market participants and to be reflected in the bid-ask price changes.