The Effect of Mandatory CSR Disclosure on Information Asymmetry: Evidence from a Quasi-Natural Experiment in China

39 Pages Posted: 26 Jan 2013 Last revised: 1 Oct 2013

See all articles by Mingyi Hung

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Jing Shi

Macquarie University

Yongxiang Wang

University of Southern California - Marshall School of Business

Date Written: September 1, 2013

Abstract

Using a quasi-natural experiment that mandates a subset of listed firms to issue corporate social responsibility (CSR) reports, this paper examines the effect of mandatory CSR disclosure on market information asymmetry in China, where we estimate information asymmetry using high frequency trade and quote data. We find that contrary to the criticism that mandatory CSR disclosure lacks credibility and relevance in emerging markets, mandatory CSR reporting firms experience a decrease in information asymmetry subsequent to the mandate. We also find that consistent with the assertion that CSR disclosure is informative about firms’ political and social prospects, the decrease in information asymmetry is more pronounced for firms with lower government ownership, weaker political connections, and smaller corporate donation. In addition, we find that analyst following increases subsequent to the mandatory CSR reporting and firms with less analyst coverage experience a greater decrease in information asymmetry subsequent to the CSR mandate.

Keywords: Mandatory CSR Disclosure, Information Asymmetry, Political/Social Risk, China

JEL Classification: G15, M14, M48

Suggested Citation

Hung, Mingyi and Shi, Jing and Wang, Yongxiang, The Effect of Mandatory CSR Disclosure on Information Asymmetry: Evidence from a Quasi-Natural Experiment in China (September 1, 2013). Asian Finance Association (AsFA) 2013 Conference, Available at SSRN: https://ssrn.com/abstract=2206877 or http://dx.doi.org/10.2139/ssrn.2206877

Mingyi Hung

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Jing Shi (Contact Author)

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

Yongxiang Wang

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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