Corporate social responsibility and ASC 820 hierarchy: evidence from responsible CSR activities

Abstract

In 2006, Financial Accounting Standards Board (FASB, 2006) issued Accounting Standards Codification No. 820 (ASC 820) requiring firms to prioritise the inputs used in fair value assessment by levels: from the most reliable (Level 1) to the least reliable (Level 3) inputs. This paper studies the relationship between responsible corporate social responsibility (CSR) activities and the fair value hierarchy under ASC 820. Consistent with the stakeholder theory, we find a positive (negative) relationship between responsible CSR activities and Levels 1 and 2 (Level 3) fair values, suggesting that firms with high levels of responsible CSR activities use more Levels 1 and 2 fair values and less Level 3 fair values. Additionally, we find that more able managers use more Level 3 fair values. However, more able managers in firms with higher levels of CSR activities reduce the use of Level 3 fair values. Overall, our results support the stakeholder theory of CSR.