۱- Introduction

۲- Institutional background and empirical predictions

۳- Sample and descriptive statistics

۴- Empirical results

۵- Additional analyses

۶- Conclusion

References

Abstract

We examine how mandatory disclosure of corporate social responsibility (CSR) impacts firm performance and social externalities. Our analysis exploits China’s 2008 mandate requiring firms to disclose CSR activities, using a difference-in-differences design. Although the mandate does not require firms to spend on CSR, we find that mandatory CSR reporting firms experience a decrease in profitability subsequent to the mandate. In addition, the cities most impacted by the disclosure mandate experience a decrease in their industrial wastewater and SO2 emission levels. These findings suggest that mandatory CSR disclosure alters firm behavior and generates positive externalities at the expense of shareholders.

Introduction

The growing global focus on economic and environmental sustainability has triggered a trend toward requiring firms to disclose their corporate social responsibility (CSR) activities (hereafter, mandatory CSR disclosure). 1 CSR activities encompass corporate social and environmental behavior that goes beyond the legal or regulatory requirement of the relevant market and/or economy (Kitzmueller and Shimshack, 2012). This trend toward requiring CSR disclosure is of particular interest to regulators, investors, and stakeholders, especially in emerging economies. In this study, we examine the impact of mandatory CSR disclosure on firm performance and social externalities. Specifically, we examine the impact of the CSR disclosure mandate enacted in China in 2008. Although this mandate did not require any changes in firm behavior, we posit that mandatory disclosure impacts a firm’s activities because the increased transparency can make it easier for governments and interest groups to pressure firms to engage in more CSR activities. We further posit that this change in behavior may lead to a decrease in firm performance. The intuition is that if these activities benefited firms, they would have been in place before the mandate.