Corporate social responsibility and unverifiable net assets ratio

The move of the Financial Accounting Standards Board to expand the use of fair value instruments results in an increase in unverifiable assets and liabilities, which do not have actively traded market prices. Prior research suggests that managers may use discretion in estimating fair values of such assets and liabilities for their self-serving interests, leading to more agency conflicts. We examine the association between a firm’s corporate social responsibility (CSR) performance and the unverifiable net assets ratio, used to capture the level of unverifiable assets and liabilities. We find a significant negative relation between CSR and the unverifiable net assets ratio, suggesting that socially responsible firms use a low level of unverifiable assets and liabilities.