The Effect of Mandatory CSR Disclosure on Firm Profitability and Social Externalities: Evidence from China

55 Pages Posted: 23 Aug 2017

See all articles by Yi-Chun Chen

Yi-Chun Chen

City University of Hong Kong (CityUHK)

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Yongxiang Wang

University of Southern California - Marshall School of Business

Date Written: August 19, 2017

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.

Keywords: Mandatory CSR disclosure, Firm performance, Social externalities, China

JEL Classification: K20, M14, M4

Suggested Citation

Chen, Yi-Chun and Hung, Mingyi and Wang, Yongxiang, The Effect of Mandatory CSR Disclosure on Firm Profitability and Social Externalities: Evidence from China (August 19, 2017). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3022534

Yi-Chun Chen

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Mingyi Hung (Contact Author)

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

Clearwater Bay
Kowloon, 999999
Hong Kong

Yongxiang Wang

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

701 Exposition Blvd
Los Angeles, CA 90089
United States

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