Abstract

http://ssrn.com/abstract=2129371
 
 

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Supply Chain Sustainability: Evidence on Conflict Minerals


Paul A. Griffin


University of California, Davis - Graduate School of Management

David H. Lont


University of Otago - Department of Accountancy and Finance

Yuan Sun


Boston University - School of Management

August 14, 2012


Abstract:     
This study tests hypotheses about the expected economic cost of section 1502 of the Dodd-Frank Reform Act of 2010, which seeks to expand transparency and eliminate trade in U.S. companies’ use of conflict minerals. Conflict minerals refers to minerals mined mostly in the Republic of Congo and adjoining countries to support armed conflict and human rights abuses. We also study conflict minerals as an example of a supply chain activity outside the confines of traditional accounting and reporting that affects investors’ perceptions of company value and sustainability. Based on companies with conflict minerals disclosures (discloser companies) and a size- and industry-matched control sample of non-disclosers, we find that shareholder value decreases for both samples for up to three weeks following the event dates of the discloser companies.

These results support the idea that conflict minerals disclosure engenders changes in company and customer decision making, which adversely affects shareholder value (the endogenic hypothesis). They are not consistent with the alternative hypothesis, that conflict minerals disclosure improves shareholder value through increased transparency. Our findings are also consistent with companies’ claims of a significant cost to implement section 1502. These results have distinct implications for corporate social responsibility disclosure, for they show that legislators’ and stakeholders’ demands for increased social transparency can be highly costly to shareholders when the disclosure rules induce significant changes in management and customer decision making. This should also help stakeholders, legislators, and regulators to be better informed about the cost and relate such cost to the perceived benefits of such changes.

Number of Pages in PDF File: 46

Keywords: Supply chain sustainability, Conflict minerals, Dodd-Frank Reform Act, Section 1502, Off-balance sheet liability

JEL Classification: G14, M41, M45, K22, Q20

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Date posted: August 17, 2012  

Suggested Citation

Griffin, Paul A. and Lont, David H. and Sun, Yuan, Supply Chain Sustainability: Evidence on Conflict Minerals (August 14, 2012). Available at SSRN: http://ssrn.com/abstract=2129371 or http://dx.doi.org/10.2139/ssrn.2129371

Contact Information

Paul A. Griffin (Contact Author)
University of California, Davis - Graduate School of Management ( email )
3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)
HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

David H. Lont
University of Otago - Department of Accountancy and Finance ( email )
Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)
HOME PAGE: http://www.business.otago.ac.nz/acty/
Yuan Sun
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
1-617-353-2353 (Phone)
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