Managers' aspirations and quality of CSR reports: evidence from China

CSR reporting has become widespread, rising from 12% of companies in 1993 to 80% in 2020. As disclosure has diffused, scholarly attention has shifted from the antecedents of reporting to understanding why report quality varies substantially across firms. This study examines whether discrepancies between a firm’s current CSR reporting quality and managers’ aspiration levels influence subsequent changes in CSR report quality. Drawing on the behavioral theory of the firm and aspirations research, the authors argue that negative discrepancies (current quality below aspirations) trigger actions that improve future report quality, while positive discrepancies (current quality above aspirations) dampen improvement and may even lead to declines. The study further proposes that these effects are stronger when firms face greater legitimacy pressures, particularly among state-owned enterprises (SOEs) and highly visible firms.

Building on Cyert and March’s behavioral theory of the firm, the paper frames organizational aspirations as reference points guiding managerial action. Aspirations are formed from historical experiences and social comparisons with peer firms perceived as similar. Prior research shows that falling below aspirations prompts search and risk-taking, whereas exceeding aspirations reduces incentives to change. In the CSR domain, quality encompasses managerial orientation, content, and reporting techniques, aligned with GRI principles. While much work has explored financial performance aspirations, fewer studies have investigated aspirations related to CSR communication and disclosure quality. The paper also reviews literature on contextual moderators: SOEs in China face strong political and legitimacy pressures, often emphasizing CSR to meet governmental and stakeholder expectations; highly visible firms benefit from reputation but are under closer stakeholder scrutiny, increasing legitimacy pressures. These literatures motivate hypotheses that (a) negative discrepancies increase growth in report quality; (b) positive discrepancies reduce growth; and (c) these relationships strengthen under state ownership and high visibility when firms are below aspirations, but not when above.

Sample: A-share Chinese listed firms, 2012–2018. Exclusions: ST and *ST firms and financial industry firms. Data sources: CSR report quality and peer-based aspiration measures from Runling CSR Reports Ratings (RKS); firm characteristics from annual reports, China Statistics Bureau, and Wind; firm visibility from the CFND financial news database. Final panel is unbalanced after matching and removing missing data. Measures: Dependent variable is growth of CSR report quality, computed as (score_{t+1} – score_t) / score_t using RKS scores (0–100). RKS evaluates quality per ISO 26000 across three dimensions: macrocosm (30%), content (50%), and technique (20), totaling 63 items. Independent variables: Managerial aspiration level for each firm-year is the industry-average CSR report quality of peer firms (same CSRC industry code, excluding the focal firm). Discrepancies are split using a spline: (a) CSR quality below aspirations = max(aspiration – firm’s quality, 0); (b) CSR quality above aspirations = max(firm’s quality – aspiration, 0). Moderators: State-ownership (1 if controlled by central/local state or government agency; 0 otherwise). Firm visibility (1 if media coverage above the sample average in CFND; 0 otherwise). Controls: Firm size (log assets), firm age (years listed), ROA (financial performance), cash ratio (slack resources), financial leverage (debt/equity), R&D intensity (log(R&D/sales + 1)), and ownership concentration. Year and industry dummies included. Estimation: Potential sample selection (only a subset issues CSR reports) addressed via Heckman two-stage procedure. First stage: probit on likelihood of issuing CSR reports to compute inverse Mills ratio (IMR). Second stage: firm fixed-effects panel regressions predicting growth in CSR report quality with IMR included. Diagnostics: Breusch–Pagan LM test favored panel over pooled; Hausman test supported fixed effects over random effects. Variables were mean-centered for interactions; VIFs acceptable (mean VIF 4.28; aside from IMR and firm size).

Descriptives and first-stage (selection) results: - Only 22.3% of firms disclosed CSR reports during 2012–2018 (mean CSR reporting dummy = 0.223). - Probit (first stage): likelihood of issuing CSR reports is positively related to firm size (b = 3.917, p < 0.001) and state-ownership (b = 1.824, p < 0.001), and negatively related to financial performance (b = -2.854, p < 0.001), leverage (b = -2.809, p < 0.001), and ownership concentration (b = -0.015, p < 0.001). (IMR carried to stage two.) Second-stage (fixed-effects) results (Table 4): - H1 supported (negative discrepancies increase growth): CSR report quality below aspirations has a positive effect on growth (b ≈ 2.017, p < 0.001; Model 2; similar magnitude across models). - H2 supported (positive discrepancies decrease growth): CSR report quality above aspirations has a negative effect on growth (b ≈ -1.120, p < 0.001; Model 2; robust across models). - H3a supported (moderation by state-ownership when below aspirations): interaction (Below aspirations × State-ownership) positive and significant (b ≈ 2.019, p < 0.001; Model 3). - H3b supported (no moderation when above aspirations): interaction (Above aspirations × State-ownership) not significant (b ≈ 0.561, n.s.; Model 3). - H4a supported (moderation by firm visibility when below aspirations): interaction (Below aspirations × Firm visibility) positive and significant (b ≈ 0.993, p < 0.001; Model 4). - H4b supported (no moderation when above aspirations): interaction (Above aspirations × Firm visibility) not significant (b ≈ 0.446, n.s.; Model 4). - Comprehensive Model 5 confirms all hypothesized patterns. Controls (Model 1 and across models): IMR positive (≈ 8.57 to 11.33, p < 0.001), firm size positive (≈ 24.4 to 39.2, p ≤ 0.01), firm age negative (≈ -1.35 to -1.49, p < 0.001), leverage negative (≈ -24 to -25, p < 0.001), slack resources negative (≈ -13 to -15, p ≤ 0.01), firm visibility small positive (p ≈ 0.05), and state-ownership positive (p ≤ 0.01). Graphical analyses indicate stronger positive slopes for below-aspiration effects among SOEs and highly visible firms.

Findings support a performance feedback view of CSR disclosure: managers benchmark their firm’s CSR report quality against peer-based aspiration levels and adjust subsequent report quality accordingly. When current quality falls below aspirations, managers increase effort and enhance reporting quality; when above aspirations, managers are satisfied and reduce improvement, sometimes leading to declines. This demonstrates a satisficing logic in nonfinancial disclosure decisions. Contextual factors shape these responses. Under stronger legitimacy pressures—SOE governance structures and heightened stakeholder scrutiny due to visibility—the positive effect of negative discrepancies on subsequent quality growth intensifies. In contrast, when firms exceed aspirations, these contextual pressures do not alter the basic satisficing response; managers generally refrain from further upgrades. The results clarify why CSR report quality varies across firms despite widespread reporting: peer comparison-driven aspirations and legitimacy context jointly influence disclosure quality dynamics. The study advances CSR communication research by integrating behavioral aspirations theory with moderators salient in the Chinese institutional environment and provides practical guidance for managers on benchmarking and anticipating stakeholder and ownership-driven sensitivities.

This paper shows that discrepancies between a firm’s CSR reporting quality and managers’ peer-based aspirations systematically predict changes in CSR report quality. Falling below aspirations leads to improvements, while being above aspirations dampens growth or triggers declines. These effects are stronger for state-owned and highly visible firms when below aspirations, highlighting legitimacy pressures as important boundary conditions. Contributions include: (1) extending behavioral theory of the firm to CSR communication quality, (2) identifying SOE status and firm visibility as moderators of aspiration-feedback effects, and (3) providing evidence from China that complements largely Western-focused literature. Future research could examine additional aspiration dimensions (e.g., historical aspirations), explore mechanisms across different institutional settings, and compare industries and countries to assess generalizability and policy implications.

- Aspiration measurement focuses on social (peer-based) aspirations; historical aspirations were not incorporated and could yield different dynamics. - The empirical context is China, with distinctive institutional features and prevalence of state ownership; generalizability to other countries may be limited. - Media-based visibility is operationalized as a binary measure relative to the sample average, potentially coarse; alternative visibility measures could refine results. - RKS-based quality ratings, while comprehensive, reflect a specific rating framework; triangulation with alternative quality assessments or assurance measures would strengthen validity. - Unbalanced panel and selection into reporting were addressed with Heckman correction, but remaining unobserved factors may still influence results.