The association between corporate social responsibility disclosure and information asymmetry: The case of Europe

The paper investigates how corporate social responsibility (CSR) disclosure, and its three dimensions are associated with information asymmetry (IA) for a sample of 1000 publicly listed companies in 33 European countries from 2009 to 2019. The study also tests whether the strength of this association differs depending on the firms’ exposure to environmental, social, and governance issues. Bloomberg disclosure score acts as a proxy for CSR disclosure. Bid-ask spreads, Amihud, and zero daily stock returns are used as proxies for IA. The results show that CSR disclosure as a whole, and environmental, social, and governance disclosure considered individually, reduce IA. The association between CSR disclosure and IA is stronger for firms sensitive to environmental and governance issues. The association holds even after controlling for potential endogeneity. The results show that investors find CSR disclosure value relevant and use CSR reports in decision-making. The results thus help in making the capital market efficient and in general the well-being of the society and environment. The paper assessed the individual impact of the three dimensions of CSR disclosure on IA for firms exposed to environmental, social, and governance issues by extending the sample to companies in the entire European region.