Existing research generally relies on signaling theory, positing that corporate social responsibility assurance (CSRA) serves as a signaling tool for improving corporate transparency. However, CSRA may have a dual role. The authors propose that CSRA may also function as a symbolic tool for firms to manage legitimacy and respond to external pressures. This study aims to fill this gap by exploring the impact of CSRA on legitimacy costs in firms with poor internal governance performance.
The authors use a sample of 9,036 company-year observations from 2,220 listed firms on the A-share market in China from 2010 to 2021. A large-sample empirical regression analysis is conducted to empirically test the impact of CSRA on legitimacy costs.
The findings reveal that firms with poor internal governance performance are more likely to use CSRA as a tool for managing legitimacy, which leads to increased audit risks and, consequently, higher legitimacy costs. Further analysis indicates that this effect is more pronounced when auditors have higher comprehensive capabilities and when there is greater media attention.
This study expands the theoretical boundaries of CSRA research by explaining its dual role effect from the perspective of legitimacy theory. The findings offer valuable insights for regulators and standard setters to assess the strategic motivations behind firms’ CSRA behaviors, particularly in administratively driven institutional environments like China.
