The mediating effect of transparency in the relationship between corporate social responsibility and corporate reputation.

AutorBaraibar-Diez, Elisa

I Introduction

The importance of corporate social responsibility (CSR) stems from the interest of the firm to integrate social issues in order to ensure sustainable development. This process is based on the belief that implementing CSR actions provides a better assessment of the activity and thereby an improvement of corporate performance in the long term (de la Fuente & de Quevedo, 2003; Devine & Halpern, 2001). Companies spend more and more resources on social issues and to be effective, CSR information must be conveyed to stakeholders. Thus, companies face a challenge not only when trying to meet stakeholders' expectations regarding the product, the service or even corporate behavior, but also in a matter of information (Odriozola & Baraibar-Diez, 2017). In fact, the significant increase of information disclosed by the company and its impact on investor confidence (Holt & DeZoort, 2009; Wilson & Walsh, 1996) contribute to highlight the need for further research in this area, where concepts such as CSR disclosure or CSR reporting have emerged and begin to be valued as an essential part of the CSR strategy (Dubbink, Graafland, & Van Liedekerke, 2008; Prado-Lorenzo, GarciaSanchez, & Gallego-Alvarez, 2012).

Disclosure and reporting of information are inevitably linked to transparency (Dubbink et al., 2008; Fuente, Garcia-Sanchez, & Lozano, 2017), as long as the company makes information available and accessible. The main point of attention when studying transparency is the unanimity of researchers, institutions, regulators and agents of opinion on what important and desirable transparency is for the efficient development of economic activity (Baraibar-Diez, Odriozola, & Fernandez, 2017). The problem lies in how to adjust transparency with disclosure and reporting and, especially, in how to apply transparency in practice, in terms of information content, quality of information or the most effective way or channel to reach stakeholders. These issues are important and complex, which explains the slow progress of research in this area.

Although literature shows many studies that analyze the relationships between CSR (including CSR disclosure and CSR reporting) and the outcomes in terms of (financial/social) performance and even corporate reputation (Brammer & Pavelin, 2006, 2016; Cochran & Wood, 1984; Falkenberg & Brunsael, 2011; Story & Neves, 2014), the truth is that, so far, transparency has not been considered as a mediator in the relationship between CSR actions and corporate reputation. This study focuses on the relationship between CSR and corporate reputation and contributes to the current literature by highlighting that the company will achieve higher reputation by implementing CSR actions when transparency beyond disclosure is included and examined. Delving into this relationship is motivated by the benefits that greater reputation may have for a company (Zavyalova, Pfarrer, Reger, & Hubbard, 2016), for example financial value (Schnietz & Epstein, 2005), employee recruitment and retention benefits (Hogarth, Hutchinson, & Scaife, 2016), customer interest (Hogarth et al., 2016) or status (George, Dahlander, Graffin, & Sim, 2016).

This study is important insofar as certain requirements of the information disclosed make a difference when trying to effectively reach stakeholders (Odriozola & Baraibar-Diez, 2017; Perez, Lo\pez, & Garcia-De los Salmones, 2017). Following the line of studies related to disclosure of CSR information and the issuance of CSR reports and its effect on corporate reputation (Perez et al., 2017), this contribution takes a step further from the mere disclosure of information and focuses on "how" that information is disclosed. In fact, it aims to test whether how disclosed information mediates the proven relationship between CSR and corporate reputation. To achieve this goal, a structural equation model, using the statistical package lavaan in R, was applied to 22 Spanish listed companies during the period 2002-2015.

2 Literature review

2.1 CSR, transparency and corporate reputation

The point of departure to theoretically analyze the effect of transparency on the effectiveness of CSR in achieving reputation is the recognition of the interest of the company in taking social actions beyond the economic activity and strict compliance with the law, contrary to the proposals of the classical theory (Friedman, 1970; Jensen & Meckling, 1976), which considered social actions as ineffective. This classical theory, identified within the group of instrumental theories expounded by Garriga and Mele (2004), prioritizes the economic feature in the interaction between business and society and accepts social actions as long as they entail an economic return.

Additionally, the theoretical justification for the adoption by the company of social, labor and environmental actions which are grouped around its CSR (see Dahlsrud, 2008 for an analysis of definitions of CSR) can be made from a normative approach, which considers those actions as ethically necessary regardless of their economic impact--perspectives grouped around the theory of legitimacy--, or from a positive approach, which considers those actions as having positive economic effects for the company, such as the case with agency theory or the theory of stakeholders.

The stakeholder theory has become the dominant paradigm when contextualizing CSR integrating normative aspects of the legitimacy theory and positive aspects of the agency theory (Garriga & Mele, 2004), including the interests and demands of other stakeholders in addition to shareholders (Mitchell, Agle, & Wood, 1997). therefore, stakeholder theory provides a more inclusive vision as it tries to favor the interests of all groups involved in the company (Odriozola & Baraibar-Diez, 2017). In this sense, CSR is considered as "the corporate attempt to negotiate its relationship to stakeholders and the public at large" (Ihlen, Bartlett, & May, 2011, p. 8), which enhances legitimization of corporate actions. In addition, disclosure of CSR information, implicit in the concept of transparency (Aksu & Kosedag, 2006), is considered as "a management tool to negotiate informative needs of several groups of stakeholders with a power in the firm (employees, shareholders, investors, consumers, public authorities and NGOs)" (Reverte, 2009, p. 353). This work is placed within the theory of stakeholders, which is widely employed as a framework to understand CSR, CSR disclosure, and CSR reporting and its relationship with reputation (Odriozola & Baraibar-Diez, 2017; Perez et al., 2017).

Corporate reputation is commonly understood as the perception of every stakeholder that their expectations have or have not been met by the firm (de Quevedo-Puente, de la Fuente, & Delgado, 2005; Walker, 2010) and the only way that stakeholders can assess whether this has occurred is through the information disclosed by the company. In this sense, disclosure of information affects the perception of stakeholders about how the company, significantly influences the reputation of the firm and is a key element to safeguard the identity of the corporation (Hooghiemstra, 2000). This is not the only benefit of corporate reputation, as this stock variable (Zavyalova et al., 2016) is the result of trustworthy behavior (Hosmer, 1995) and provides other benefits such as financial value (Schnietz & Epstein, 2005), positive effects on human resources or consumer interest (Hogarth et al., 2016) and generates status (George et al., 2016), which encourages companies to improve the way of achieving corporate reputation.

Of all the previously presented concepts related to CSR and its effects, the potential specific link between CSR and corporate reputation has received less empirical research. In fact, the database Web of Science reports only 35 studies on both concepts (corporate social responsibility and reputation) in the title together from 2010 to 2017, with effects in both directions. There are studies that find that prior corporate reputation has an impact on how consumers evaluate CSR activities (Lee, Chang, Kim, & Lee, 2016; Skard & Thorbjornsen, 2014) but the major stream refers to the effect of CSR on corporate reputation (Brammer & Pavelin, 2004; Eberle, Berens, & Li, 2013; Fernandez Sanchez, Luna Sotorrio, & Baraibar Diez, 2015; Fombrun & Shanley, 1990; Kim, 2015; Luna & Baraibar, 2011; Melo & Garrido-Morgado, 2012; Odriozola, Martin, & Luna, 2015; Toms, 2002). That is why it is considered as a circular relationship (Olmedo, Martinez, Arcas, & Longuinos, 2012), although there are also studies from other points of view, considering reputation as a mediator between CSR and brand performance (Lai, Chiu, Yang, & Pai, 2010), financial performance (Saeidi, Sofian, Saeidi, Saeidi, & Saaeidi, 2015), or multiple stakeholder outcomes (Arikan, Kantur, Maden, & Telci, 2016).

The major stream confirms empirically that there is a significant and direct relationship between CSR and reputation but the underlying question is which role transparency plays in this relationship. Although there are authors including variables affecting that relationship (Fernandez Sanchez et al., 2015), none of them have analyzed the role of transparency before.

2.2 Transparency and its characteristics

Disclosure of information is considered the means to manage the informative needs of several types of stakeholders, structuring social actions as a way to make the business more profitable, incorporating ethical, social and environmental values in the decision-making process (Piechocki, 2004; Toms, 2002). Undeniably, the origin of the concept of transparency is the disclosure of corporate information as a means of reducing information asymmetry between the company and its stakeholders in order to reduce transactional costs and improve efficiency, but the problem arises when the concept of disclosure is identified with transparency.

Disclosure of...

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