Mandatory CSR reporting and corporate financial performance : the causal effects of §3-3c in the accounting act on the financial performance of Norwegian companies

Abstract

Regression discontinuity design was employed to estimate the causal effects of mandatory CSR disclosure imposed by §3-3c in the Accounting Act on the corporate financial performance of companies in Norway. The analysis used data from 4 954 Norwegian firms. In this study, 15 financial ratios – that assess the profitability, efficiency, liquidity and leverage – were selected to examine the change in corporate financial performance. By using small and large businesses as treatment and control groups, respectively, this project estimated the causal effects of the legislation on the change in the ratios. The regression discontinuity design did not facilitate the causal estimation of §3-3c on liquidity. The analysis did reveal positive and negative short-term effects on profitability and firm leverage, respectively. However, the analysis yielded inconclusive results for financial efficiency. Nevertheless, all companies must incorporate CSR into their business strategies and actively report on their CSR activities to their stakeholders. Keywords – Regression Discontinuity, Mandatory CSR Reporting, Corporate Financial Performance, Accounting Act, Norwegian Companies