Which firms choose to purchase voluntary external assurance for CSR disclosures: relationship with cost of debt

Abstract

Throughout the past decades, firms have disclosed increasing amounts of sustainability information due to pressure from various stakeholders, as well as the constantly developing regulation. With the importance of said CSR disclosures rising, stakeholders have begun to question the verifiability of the disclosed information. This has led to many firms voluntarily purchasing external assurance for their CSR disclosure to enhance its credibility, relevance, and transparency. Unassured sustainability disclosures that portray the firm in a positive light face the risk of being viewed as greenwashing in the eyes of stakeholders. CSR assurance has also sparked criticism, as some believe assurance providers are not objective, but the outcome is influenced by the firm’s management.

This study aims to find firm determinants that are associated with the choice of purchasing CSR assurance, and further examine the relationship that CSR assurance has with cost of debt. The phenomena are analyzed among Finnish listed firms that operate under a sustainability disclosure mandate during the years 2018-2021. Consistent with prior literature, this study finds firm size to be positively associated with the choice of purchasing CSR assurance. In addition, novel characteristics are unveiled, including firm profitability, growth, as well as the period of time that a firm has been listed on the stock exchange. A statistically significant relationship between CSR assurance and cost of debt was however found only for those firms that had persistently purchased CSR assurance throughout the four sample years. This study contributes to prior literature by providing an understanding of the determinants and benefits of CSR assurance in a setting, where firms are required to disclose sustainability information.