Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Research Article: 2019 Vol: 23 Issue: 1

CSR Disclosure Impact on Corporate Market Performance of Indonesia Listed Companies (IDX) in Trade Sectors

Nurdiono Nurdiono, University of Lampung

Doni Sagitarian Warganegara, University of Lampung

Afri Aripin, University of Lampung

Agus Zahron, University of Lampung

Edwin Mirfazli, University of Lampung

Leire San Jose, Universidad del Pais Vasco, Spain

Daniela Ventsislavova Georgieva, International Business School, Bulgaria


The paper analyzes the effects of disclosed CSR (community social responsibility) information on the market performance of Indonesian companies. Fifteen trade companies listed on the Indonesia Stock Exchange are observed from 2014 to 2016. CSR information is derived from annual reports and financial statements. We find that CSR affects Stock Return (SR), Debt Equity Ratio (DER), and Return on Equity (ROE). We argue that CSR disclosure has a positive but non-significant effect on SR and that it has a negative but non-significant effect on corporate market performance. In addition, it has a positive and significant effect on DER and ROE. Our results contribute to a more in-depth understanding of the impact of non-financial information on market performance.


Corporate Social Responsibility, Corporate Market Performance, Financial Performance, Trade Sectors.


Corporate Social Responsibility (CSR) focuses on social actions of the company which improve social and environmental conditions. The consequences can enable the companies to outperform other companies (Dhaliwal et al., 2011).

Previous research suggests a different view of CSR for managers who speculate (Calomiris et al., 2010). Activities based on social responsibility require greater financial disclosure and superior standards in financial reporting, and are more likely to be associated with a higher level of transparency (Ali et al., 2014).

The social impact of corporations, regardless of whether they are large or small, has become a very important issue. Poor social impact, in fact, may increase the financial risk of companies, may cause wrong relationships with many parties and may affect the reputation of the whole organization (Mishra & Suar, 2010). In most cases, the result is a decrease in the value of the company and, sometimes, the end of the corporation itself. That is why in recent years, many companies develop strategies that reduce conflicts with the community (Salewski, 2014). CSR becomes necessary as a result of conflicts between communities and companies following negative effects of the companies’ activities on the environment. In its existence, the company cannot be separated from society as a supporter of the external environment (Ali et al., 2012). To improve the social impact of the company's activities can be seen as improvement of the company itself (Dhaliwal et al., 2011).

Most research in this field analyzes the relationship between CSR and corporate performance. Mishra & Suar (2010) state that the relationship between CSR and CFP is largely inconclusive. Some studies reveal a positive correlation (Jo & Harjoto 2011; Margolis & Walsh 2003; Orlitzky et al., 2003). Others show a negative relationship (Wright & Ferris, 1997), orno relationship at all between CSR and CFP due to their complexity (Crisostomo et al., 2011).

According to Ullmann (1985), a company’s social activities are more than just a way of achieving economic results. Through these activities the company can develop a good relationship with the community and, indirectly, create added value for the stakeholders. That is, the company's attitude towards disclosure data related to social responsibility activities can develop and maintain good relationships with society in general (Branco & Rodrigues, 2006).

CSR often overlaps with similar approaches such as corporate sustainability, sustainable development and the company's social responsibility (Fisman &Wang, 2012). In addition, CSR has a variety of potential meanings. It can be considered as a way of integrating the economic interests of the private sector with wider social and environmental activities (Dhaliwaletal, 2011).

Barnett (2005) focuses on two main characteristics of CSR: social welfare, and the relationship with stakeholders. Many small businesses adopt CSR, and managers of larger businesses facean increasing pressure to justify the allocation of scarce resources of the company. Accurate measurements are needed (Barnett, 2005), especially of manufacturing companies. But retail companies also consumelarge amounts of natural resources, such as paper and energy, and create waste (Ullmann, 1985; Margolis et al., 2007). Therefore, how they contribute to the conservation of energy and natural resources and recycling activities is important. Retail traders may not directly pollute the environment, but still have the responsibility to report on their activities in a way that is transparent and open to the public. Previous studies are inconclusive about this issue (Margolis & Walsh, 2003; Margolis et al., 2007). Further investigation and research is needed, especially in the field of retail trade (Branco & Rodrigues, 2006).

Hypothesis Development

In the literature there are two main theories about how CSR affects performance. Several authors (Graves & Waddock, 1994; Griffin & Mahon, 1997; Waddock & Graves, 1997; Margolis & Walsh, 2003; Orlitzky et al., 2003) argue that investment in CSR has a positive return in terms of image and overall financial results. Benefits from CSR investment are greater than the related costs. Ruf et al. (2001) identify a period of three years during which the companies are positively affected. This is the first theory.

The second is that the relationship between CSR and corporate performance is negative (Bromiley & Marcus, 1989; Wright & Ferris 1997; Barnett & Salomon, 2006; Barnea & Rubin, 2006). If managers can reduce the investment in CSR, they say, it will improve the short-term profitability of the companies.

This idea is opposed by Preston & O'Bannon (1997), who advance the thesis of opposite trend associated with the same phenomenon.

In fact, corporate responsibility can be more important to stakeholders than maximizing the profits, and in this sense CSR is a way of responding to the real needs of the investors. Every company is a social agent with several stakeholders. Management has the task of creating a balance between investors, employees, suppliers, the community, and the environment (Pyo & Lee, 2013). Satisfying their interests and being responsible to them all can positively affect all dimensions of the company, including financial performance. CSR is therefore an important aspect of a company's strategy, because of the possibility of financial scandals and a consequent decline in investor confidence.

CSR, in fact, is strongly connected to the idea of a company's reputation. Barnett (2005) asserts that CSR initiatives improve investors’ confidence, create new market opportunities, and gain positive reaction from the capital market. Positive reputation is often associated with positive financial returns. However, reputation’s value depends on the inability of competitors to imitate reputation (Klein & Dawar, 2004).

Margolis et al. (2007) propose that CSR is a form of insurance policy against negative events. Even if it does not immediately increase profitability, it reduces the impact of damaging events. The studies show that consumers are more willing to punish the bad behavior of a company than to reward itsgood behavior (Roberts and Dowling, 2002).

Empirical studies by Ruf et al. (2001) report a positive relationship between both shortterm benefits (for example, sales growth) and long-term benefits (eg ROE). Orlitzky et al. (2003) use a meta-analysis to showthat CSR is related to financial performance demonstrated by ROE. Chand (2006) uses measures of profitability ROE and DER to support the thesis that CSR is positively related to the CFP. According to Inoue & Lee (2010), the ROE indicates that companies from four tourism industries (airlines, casinos, hotels, restaurants) can improve their financial performance through every level (Setiawan & Darmawan, 2011).

However, Dkhili &Ansi (2012) state that ROE is negatively related to CSR. Similarly, Fiori et al. (2007) find that DER has a negative effect on the share price, ROE has a positive effect on it, and CSR disclosure has no effect on stock prices at all.

Our initial proposition (Ha0) is that CSR does not affect the stock price of Indonesian companies, because the financial market in Indonesia is not efficient enough and because most stakeholders are short-term oriented. We argue that in Indonesia there is no understanding of the real impact of social and environmental policies on the performance and image of the companies. Our several hypotheses are:

Ha1: CSDiLAhas a negative effect on and does not significantly influence SR.

Ha2: CSDiHR has a negative effect on and does not significantly influence SR.

Ha3: CSDiSO has a negative effect on and does not significantly influence SR.

Ha4: CSDiPR has a negative effect on and does not significantly influence SR.

Ha5: DER has a negative effect on and does not significantly influence SR.

Ha6: ROE has a positive effect on and significantly influences SR.

Research Methodology

Brief & Lawson (1992) define two potential financial returns for the company resulting from CSR. The first is additional profit as a reward for positive behavior and the second is mitigation of any negative consequences of corporate behavior, the so-called safety net. In previous studies the two methods are used to establish a correlation among Corporate Financial Performance (CFP), and the level of investment in CSR (based on data from the CFP), and some financial index performance, such as stock prices (Knox & Maklan, 2004).The focus of our research is the relationship between CSR and stock price. To measure the performance of the company we use profitability, liquidity, solvency, financial efficiency and stock return (Fombrun et al., 2000). These five factors underpin the market valuation of the company. Accounting-based measures of financial performance are sufficient predictors of market-based appraisal of the companies and their returns. (Peasnell, 1996). Stock price reflects the fundamental value of the stock from which come the dividends to the shareholders (Fombrun et al., 2000).

We use the closing prices derived from the Capital Market Reference Center (PRPM) of the Indonesia Stock Exchange, and the annual reports of the companies (GRI, 2006).

The hypothesis of no correlation between stock prices and CSR is tested through crosssectional analysis. In particular it is done through the regression model for the three-year observation sample, which is used to verify the relationship between the stock price and the model variables. For the purposes of linear regression we consider these variables: the share price as the dependent variable, and CSR, DER, and ROE as independent variables.

This research uses a multiple regression model as follows:



SR: Stock Return.

CSDI: Corporate Social Disclosure Index (CSRI).

DER: Debt to Equity.

ROE: Return on Equity.

β0-β6: The estimated coefficient.

εit: error term.

i:1,2,..., N.

t: 1,2,..., T.

N: number of observations and T: amount of time.

Information about Corporate Social Disclosure Index (CSDI) based on the GRI helps this study ( GRI coexists with CSDI as a part of sustainability reporting. CSDI calculation uses a dichotomous approach, that is, each item of CSR in the research instrument is rated with level 1 if it is disclosed, and 0 if it is not disclosed. Furthermore, scores of each item are summed to obtain the overall score for each company. The CSDI calculation formula is as follows (Graves &Waddock, 1994):



CSDIt : Corporate Social Responsibility Disclosure Index company j, including Labor (LA), Human Rights (HR), Society (SO), and Product Response (PR).

nj : number of items for firm j, nj=40.

Xij : 4=if item i disclose level; 0=if item i no disclose.

Thus, 0<CSDIt<1


Descriptive Analysis

The initial phase of data analysis is a descriptive statistical analysis of the selected 15 companies. The result is shown in Tables 1-4 below.

Table 1 : Analysis Descriptive All Variables
Mean Std. Deviation N
SR 0.3373 0.69247 45
CSDILA 0.7320 0.04495 45
CSDIHR 0.2102 0.06966 45
CSDISO 0.6598 0.05198 45
CSDIPR 0.6822 0.06725 45
DER 0.9020 8.13101 45
ROE 24.0811 55.08639 45
Table 2: Analysis Correlation All Variables
Pearson Correlation SR 1.000 0.236 -0.120 -0.256 -0.020 0.093 -0.187
  CSDILA 0.236 1.000 0.174 0.009 -0.339 0.297 -0.356
  CSDIHR -0.120 0.174 1.000 0.331 -0.209 0.191 -0.180
  CSDISO -0.256 0.009 0.331 1.000 -0.035 0.171 0.115
  CSDIPR -0.020 -0.339 -0.209 -0.035 1.000 -0.178 0.175
  DER 0.093 0.297 0.191 0.171 -0.178 1.000 -0.689
  ROE -0.187 -0.356 -0.180 0.115 0.175 -0.689 1.000
Sig. (1-tailed) SR 0.000 0.059 0.215 0.045 0.447 0.271 0.110
  CSDILA 0.059 0.000 0.126 0.477 0.011 0.024 0.008
  CSDIHR 0.215 0.126 0.000 0.013 0.084 0.105 0.118
  CSDISO 0.045 0.477 0.013 0.000 0.410 0.130 0.226
  CSDIPR 0.447 0.011 0.084 0.410 0.000 0.122 0.125
  DER 0.271 0.024 0.105 0.130 0.122 0.000 0.000
  ROE 0.110 0.008 0.118 0.226 0.125 0.000 0.000
N SR 45 45 45 45 45 45 45
  CSDILA 45 45 45 45 45 45 45
  CSDIHR 45 45 45 45 45 45 45
  CSDISO 45 45 45 45 45 45 45
  CSDIPR 45 45 45 45 45 45 45
  DER 45 45 45 45 45 45 45
  ROE 45 45 45 45 45 45 45
Table 3 : Anova Results Analysisa
Model   Sum of Squares df Mean Square F Sig.
1 Regression 2.966 6 0.494 1.036 0.018b
  Residual 18.133 38 0.477    
  Total 21.099 44      
Table 4: Regression Model
Model   Unstandardized Coefficients Standardized Coefficients t Sig.
    B Std. Error Beta    
1 (Constant)a -0.485 2.855 - -0.170 0.006
  CSDILA 3.588 2.609 0.233 1.375 0.177
  CSDIHR -0.984 1.659 -0.099 -0.593 0.006
  CSDISO -2.925 2.299 -0.220 -1.273 0.008
  CSDIPR 0.521 1.672 0.051 0.311 0.757
  DER 0.003 0.019 0.032 0.145 0.885
  ROE -0.001 0.003 -0.083 -0.364 0.718

Hypothesis Testing

Hypothesis testing is done by looking at the significance value of each relationship between exogenous and endogenous variables in the research model. Table 5 shows the test results for each hypothesis by looking at the t-test to see the significance of each variable included in the model, as well as to test the research hypothesis.

Table 5: t-Test Result
H Dependent Independent b t Sig Result
Ha1 SR CSDiLA 3.588 1.375 0.177075 Rejected
Ha2 SR CSDiHR -0.984 -0.593 0.006804 Accepted
Ha3 SR CSDiSO -2.925 -1.273 0.00883 Accepted
Ha4 SR CSDiPR 0.521 0.311 0.757247 Rejected
Ha5 SR DER 0.003 0.145 0.885328 Rejected
Ha6 SR ROE -0.001 -0.364 0.717696 Rejected


Ha1: CSDiLA has a negative effect on and does not significantly influence SR (Rejected).

Analysis shows that CSR disclosure in labor activity of the selected companies has a positive but not significant statistical effect on corporate market performance that proxies by Stock Returns (SR). In this case, CSR in labor activity benefits the companies that were analyzed. Payment for CSR does not reduce corporate profits. In fact, the positive effect of SR increases with improvement of company's CSR in labor activities. In this respect, by implementing CSR the profits of the companies are maximized. Our results confirm the theories of Kang et al. (2010); Chen & Wang (2011); Setiawan & Darmawan (2011); and Ehsan & Kaleem (2012).

Ha2: CSDiHR has a negative effect on and does not significantly influence SR (Accepted).

Analysis confirms that CSR disclosure in human rights activities has no significant statistical impact but has a negative effect on corporate market performance proxied by SR. By improving CSR, Indonesian retail and trade sectors may be able to fulfill the concept of Triple Bottom Lines especially in human rights indicators. SR reflects the company’s profit derived from capital. A high SRshows the investors’ good opinion. In this aspect we confirm the research conclusions of Fiori et al. (2007) and Dhkili & Ansi (2012).

Ha3: CSDiSO has a negative effect on and does not significantly influence SR (Accepted).

CSR has a negative but not statistically significant effecton market performance proxied by SR. CSR is a long term benefit. Although a company must pay for CSR implementation, it is not a cost that reduces corporate profits. The positive effect of SR increases as the company's CSR increases. We confirm the work of Fiori et al. (2007); Dhkili & Ansi (2012) and Ehsan & Kaleem (2012).

Ha4: CSDiPR has a negative effect on and does not significantly influence CSDiPR (Rejected).

We note that CSR has a positive but not significant effect on SR. In this case, CSR is beneficial. While companies do pay for CSR , it is not a cost that reduces overall profits. The positive effect of SR increases with CSR. However, this is not statistically significant. We support the conclusions of Kang et al. (2010); Fiori et al. (2007); Dhkili & Ansi (2012); and Ehsan & Kaleem (2012).

Ha5: DER has a negative effect on and does not significantly influence SR (Rejected).

Debt Equity Ratio (DER), according to the research, does not have a significant statistical effect but does have a positive effect on SR. The Indonesia retail and trade companies that we analysed manage risk properly. Good service increases the loyalty of consumers and investors, and will ultimately increase sales. We show opposite results from those of Fiori et al. (2007).

Ha6: ROE has a positive effect on and significantly influences SR (Rejected).

ROE has a statistically significantnegative effect on corporate market performance measured by SR. We once again show opposite results from those of Fiori et al. (2007).

Conclusion And Implication

As a main conclusion it can be pointed out that improving the CSR data disclosed by companies in Indonesia will improve the corporate market performance as proxied by SR. In this respect, CSR in annual reports is considered as an investment and not as an expense.

CSR, especially in human rights and community benefits, enhances the perceived corporation value, which then becomes a real added value to the shareholders.

The retail and trade ISX companies in this study generate capital gains and assets to affect their value. It should be noted that profit from operating income can affect corporation value, because income need not reflect a company's high stock prices.

This study has one limitation: few companies publish sustainability reports for social responsibility. We use data from the annual reports, and we cannot generalize. The absence of company guidelines increases subjectivity in determining items to measure social responsibility with all indicators by GRI models.