1. Introduction
In recent decades, governments, users of financial reporting information, customers, workers, and suppliers have all sought and voiced expectations in terms of the company’s CSR initiatives [
1,
2,
3,
4,
5]. Corporations should be encouraged to disclose more CSR information. As a result, corporations have attempted to adapt to the aforementioned standards in terms of implementing socially responsible acts and environmental protection [
4,
5,
6]. Companies, on the other hand, are hesitant to devote greater resources to CSR since it diverts resources away from core business operations, perhaps putting the firm in a worse financial situation than it would otherwise be in if it did not take part in corporate social responsibility [
7]. On the other hand, it is thought that implementing a CSR strategy will improve the company’s image, add possible value to the company, and eliminate potential hazards.
In recent years, a succession of natural catastrophes as a consequence of climate change, and the presence of the COVID 19 pandemic, have highlighted the need of CSR efforts. Importantly, participation in international free trade accords such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CTPPP) and the EU-Vietnam Free Trade Agreement (EVFTA) brings CSR to the forefront concerns in Vietnam. Because the company’s business is linked to the global value chain, this is the case [
8]. CSR is beneficial to a company’s capacity to access foreign markets when it is practiced and disclosed. More crucially, disclosing CSR data can lead to the possibility of attracting funding from investors who adhere to high social and environmental norms. This is the driving force behind some multinational corporations’ proactive publication of CSR data in the form of voluntary disclosure [
9]. Notably, some listed companies in Vietnam have made sustainable development reports quite early, for example, Vietnam Dairy Products Joint Stock Company [
10], Hau Giang Pharmaceutical Joint Stock Company [
11], Vicostone Joint Stock Company [
12].
According to recent studies, CSR disclosure may help firms significantly. CSR disclosure may provide considerable benefits to a firm if it is directed toward the interests of its stakeholders. More significantly, CSR disclosure may be a win-win approach for all stakeholders. Stakeholders’ interests are safeguarded when firms conduct and disclose CSR activities. Firms also garner benefits from lower cost of financing from such an involvement in these socially responsible activities [
13].
The total risk of a firm (hereafter, firm risk) is the consequence of external or internal variables impacting its profitability [
14]. Theoretically, firm risk can be divided into two types: systematic and unsystematic risks [
14,
15,
16]. Firm risk is the danger that a company’s operations may be unclear in the future [
17]. Today’s global businesses are operating in an unpredictable and risky environment. They are all interested in how to reduce business risk. As a result, if CSR disclosure is helpful, it may be incorporated into a firm’s entire risk management strategies.
This research seeks to examine how CSR disclosure affects a firm’s risk. This research makes a number of significant contributions. To begin with, the theoretical link between CSR disclosure and firm risk is ambiguous. Furthermore, previous research has primarily focused on the relationship between CSR disclosure and firm risk in developed markets (the United States, the United Kingdom, America, and Europe), with mixed results [
14,
18,
19,
20]. As a result, more research in the context of emerging markets is required to re-evaluate this link, and this is the scope that we will analyze. Second, we find that CSR has recently received much attention in developing countries, but institutions and practices differ from country to country may make findings from one research in a country unfit for the generalization to others. Importantly, even though there are numerous studies on CSR in emerging markets, there is relatively limited research on the link between CSR disclosure and firm risk [
21]. Third, CSR has now become a norm and can be seen as a link between business and social and economic growth in Vietnam. Research on the function of CSR disclosure in the Vietnamese context will aid policymakers in building the disclosure framework that benefit both the reporter (the firm) and stakeholders.
The remainder of the research is organized as follows: The study hypotheses are developed in
Section 2, research techniques are discussed in
Section 3, the empirical findings are summarized and analyzed in
Section 4, and lastly, conclusions and suggestions are presented in
Section 5.
2. Literature Review and Hypothesis Development
In recent decades, both scholars and the general public have paid close attention to non-financial data, notably CSR disclosures [
22,
23]. As a result, businesses have begun to recognize this trend and incorporated a series of CSR activities into their operations, as well as publishing an annual report that disclose their social activities. The disclosure could be considered as one of the most effective techniques to reach potential investors [
24,
25,
26,
27].
In addition to potential financial benefits, CSR participation and its disclosure could reduce reputational damage and associated negative consequences. When it comes to CSR, businesses aim to reduce the possibility of a bad outcome [
1,
28].
In addition to being environmentally friendly, society are increasingly demanding that businesses operate in a socially responsible manner [
29,
30]. This expectation is a logical extension of Stakeholder Theory [
26,
31,
32]. The Legitimacy Theory provides a plausible explanation as to why businesses require societal acceptance to survive and thrive [
33,
34]. CSR activities have become a standard to seek societal acceptance throughout the world. The first study of non-financial intelligence concentrated on the notion of measurement and its influence on financial performance success [
2,
35,
36,
37,
38].
Firm risk is a risk that has always been existing as a consequence of internal or external factors impacting a firm’s operation. For example, an external factor of changes in client demand might result in a sharp decline in sales and a wide fluctuation in an organization’s stock price, influencing the risk a firm must assume [
14]. Internal security vulnerabilities, environments and operations, and market shocks are only some of the dangers that exist. All of these risks may be broken down into three categories: economic, technological, and political risks [
39].
Many prior studies have documented considerable evidence of a negative link between corporate social responsibility and risk [
14,
40,
41]. However, several empirical investigations [
42,
43] have shown either a positive or no association. The primary point of our study is that the research results based on the current setting might be entirely different from what has been documented previously because of changing situations in an emerging market. CSR is a concept that has gained a lot of traction in the last decade, and it is considered valuable non-financial information when evaluating firm value. Recent studies on the application of resource-based theory and stakeholder theory, in particular, have brought fresh insights into the present link between CSR and firm risk [
22,
23,
29,
44,
45].
Several works on the link between CSR disclosure and firm risk have been undertaken. Investors may assign a higher risk level to firms with a higher CSR index, according to previous research [
19]. Those firms may encounter a higher cost of capital, for example, or a lower credit rating. According to previous investigation [
46], CSR-oriented companies with a diverse set of stakeholders have a higher susceptibility to economic shocks. To put it another way, a company’s increased interest in stakeholders raises its firm risk. Furthermore, CSR efforts can deplete a firm’s resources, weaken its competitiveness, and make it more sensitive to external shocks [
47].
Another study [
48] assessed the relationship between CSR and financial risk in the Canadian market between 1995 and 1999. The correlation technique and the portfolio approach were used in this study. The correlation method’s findings suggest that the more CSR activities a company engages in, the less risky it becomes. According to the portfolio method, organizations that do not conduct CSR are 70 percent more likely to innovate.
Institutional investors, on the other hand, may see firms with poor CSR as riskier investments [
41]. CSR disclosure can be expected to have a negative association with firm risk [
15]. While environmental and social disclosures have no influence on a firm’s systemic risk, there is a substantial and negative effect of information disclosures on the total risk and unsystematic risk of the firm [
15]. Consistent with this argument, unsystematic risk and CSR disclosure have a negative relationship [
48,
49], but systematic risk and CSR disclosure have a positive relationship [
50]. Furthermore, through the indirect output of company reputation, the negative effect of CSR disclosure on firm risk may be more complex [
18]. As a result, CSR disclosure is a reasonable investment in a company’s reputation. Stakeholder behavior is influenced by reputation, which fosters positive perceptions from stakeholder toward the firm [
51]. Employees’ perceptions of the company’s operations boost the company’s long-term viability and stability. For outside investors, reputation is a significant intangible asset that keeps stock values stable in tough times [
3], or helps firms survive difficult times with more steady cash flows and less fluctuating stock prices [
27]. As a result, CSR disclosure may help to reduce a firm risk through the former’s ability to build up the firm’s reputation. Another study [
20] adds to this argument by claiming that the negative impact of CSR disclosure on firm risk might be due to consumer loyalty. This is because customers tend to show support for ethical businesses during economic downturns [
3,
52]. Companies that participate in CSR practices are less sensitive to economic downturns because they have more supporting stakeholders [
53,
54]. Furthermore, even controversial industry firms might lower their risk by engaging in CSR activities [
14,
21].
There are two conflicting viewpoints on the influence of CSR disclosure on the firm risk, based on Resource Theory and Stakeholder Theory.
Firstly, investment in CSR, according to Resource Theory [
55], will shift valuable company resources that might be earmarked for other projects like establishing new product lines or strengthening research and development skills [
47]. Excessive concern about the environment, for example, might raise costs and put businesses at a competitive disadvantage. Furthermore, the over-investment hypothesis proposes that managers purposefully over-invest in CSR initiatives at the expense of outside shareholders in order to improve their own capability and reputation as responsible executives. Over-investment reduces the value of a firm and increases its risk by having negative effects on its operations. The over-investment effect also implies that CSR disclosure will have a favorable impact on firm risk. Some previous research [
19,
46] supports Resource Theory’s risk-increasing stance.
Secondly, CSR disclosure is directed towards the interests of stakeholders, according to Stakeholder Theory [
4,
5,
56]. Firms that do not consider the interests of their stakeholders are more likely to face higher costs in the future [
7]. Nonetheless, these expenses may continue to rise as a result of the prospect of regulatory monitor, exacerbating the company’s problems. The company that claims to have stronger CSR, on the other hand, will be able to reduce firm risk. Because CSR initiatives may assist businesses in mitigating the effects of adverse events. CSR, for example, can help shield firms from public backlash by reducing the possibility of lawsuits due to unintentional environmental damages. Firms that engage in CSR are more likely to disclose their CSR operations and therefore become more transparent [
57]. A higher level of transparent lowers the information asymmetry between the firm and its investors, lowering firm risk. Furthermore, ethical managers are believed to utilize CSR to enhance information transparent, strategy, charity, and, eventually, to minimize firm’s total risk [
3,
53,
54,
58,
59,
60,
61,
62,
63,
64]. There are no consistent outcomes across marketplaces throughout the world, based on underlying theory and past study findings. However, the mechanism in place in Vietnam to encourage voluntary non-financial information disclosure is expected to improve financial market transparency. This demonstrates the favorable impact of CSR on business image and risk mitigation. In light of the above research, the authors propose the following hypothesis:
Hypothesis 1. CSR disclosure has a negative effect on firm risk.
3. Research Design
3.1. Data Collection
The research data covers firms listed on the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX). More than 700 firms are listed on HOSE and HNX, with more than 100 in the banking and insurance industries. We choose firms on the basis that they can represent well the industries, so we select firms so that the total market capitalization of firms in the sample is at least 90 percent of the industries. Furthermore, these businesses are more likely to proactively share CSR data and provide complete annual reports. The research sample consists of 225 non-financial businesses that were listed on the Vietnamese stock exchange between 2014 and 2019. Because financial, banking, and securities firms have different characteristics in terms of economic activities and reporting standards, the listed companies chosen for the research sample are non-financial organizations. As a result, the authors chose a total number of 225 businesses, comprising 159 companies listed on HOSE and 66 companies listed on HNX. CSR data is obtained from sustainability reports and annual reports of companies listed on the Vietnamese stock market. The financial data is provided from Refinitiv Eikon.
3.2. Research Models
To assess the impact of CSR disclosure on firm risk, the authors construct the following model that is in line with previous studies [
14,
15,
21]:
In which,
i = 1, 2,…, 225 (where i represents 225 listed companies);
t = 1, 2, 3,…, 6 (where t is the period of 6 years, from 2014 to 2019);
FR: Dependent variable that measures firm risk i at year t using two proxies: VOLATILITY and VOL_DUM, inherited from previous studies [
14,
15,
21].
CSR: the main independent variable that represents CSR disclosure of firm i at year t. This variable has four proxies: CSR_ALL, CSR_ECO, CSR_ENV, CSR_SOC (
Appendix A). These are indices that are created using the content analysis method.
SIZE: control variable (SIZE = Ln(Total assets)) that shows the size of firm i in year t [
14,
15,
19,
65].
LEV: control variable, measured as the ratio of business i’s total liabilities to total assets in year t (LEV = Total liabilities/Total assets) [
14,
15,
19,
65].
ROA: control variable that depicts the profitability of firm i in year t (ROA = Profit after taxes/Total assets) [
14,
15,
18,
65].
GROW: control variable that represents business i’s revenue growth in year t (GROW = (This year’s revenue − Previous year’s revenue)/Previous year’s revenue) [
14,
18].
AGE: Control variable indicating the age of the firm i’s listing in time t (AGE = Ln(listing age)), adopted from prior research [
19,
65].
INDUSTRY: The industry effects are all controlled by the vector control variable INDUSTRY. We use Thomson Reuters industry categorization standards. The industries include Basic Materials, Consumer Cyclicals, Consumer Non-Cyclicals, Energy, Healthcare, Industrials, Technology, and Utilities.
1, 2, … 6: the regression coefficient quantifies the change in the dependent variable per unit change in the independent variable when the values of all independent variables are constant.
: the error.
To sum up, SIZE, LEV, ROA, GROW, and AGE are control variables for company size, financial leverage, profitability, revenue growth, and listing age, respectively. In addition, the authors utilize industry dummy variables, which correspond to industries according to the Thomson Reuters database’s industry categorization criteria, to control the impact on the field’s potential firm business risk, in line with prior research [
14,
15,
18,
65].
3.3. Methodology
To assess the research findings, the authors utilize the OLS estimate technique. OLS estimations, however, will not be efficient in the presence of heteroskedasticity issue. Furthermore, autocorrelation causes the t-value (or the p-value) to be higher than it should be, and the regression coefficients to be statistically significant. Even when the sample is big, the estimates become increasingly incorrect if this event happens simultaneously with fluctuating variance. Hence, we utilize Linear regression with panel-corrected standard errors (xtpcse) or fit panel-data models using Generalized least squares (xtgls) to handle data with heteroskedasticity and/or autocorrelation issues. The authors also utilize the logit model with the measure of the binary variable of the dependent variable in the research and analysis based on data grouping to assess the stability of the research findings.