The relation between corporate social responsibility (CSR) disclosure and market liquidity: Australian evidence

Recent increases in corporate social responsibility (CSR) disclosure have raised several questions as to why firms engage in CSR disclosure behaviour. One of many possible benefits might be the increased level of market liquidity. In this context, this study examines the relation between CSR disclosure and market liquidity for 200 listed CSR-sensitive firms on the Australia Stock Exchange (ASX) for the year 2014. In particular, this study uses two CSR disclosure measures and four types of market liquidity measures to investigate the association between the two. Based on legitimacy and signalling theory it is hypothesised that firms with lower market liquidity are likely to engage in CSR disclosure behaviour and that with superior CSR disclosure behaviour will enjoy a subsequent increase in market liquidity in the following year. The relation is examined using multiple regression analysis. The results of the study find that a lower level of market liquidity is significantly associated with firms’ engagement in CSR disclosure. The findings of the study are likely to shed light on the importance of CSR disclosure.