CSR Restatements and the Contagion Effect: An Experimental Investigation of Issue Materiality and Intent

47 Pages Posted: 3 Jun 2019 Last revised: 27 Oct 2020

See all articles by Ann G. Backof

Ann G. Backof

University of Virginia - McIntire School of Commerce

Eric Michael Negangard

University of Virginia; University of Virginia

Jennifer Winchel

University of Virginia - McIntire School of Commerce

Date Written: October 21, 2020

Abstract

Investors are demanding more Corporate Social Responsibility (CSR) reporting, which has increased the prevalence of CSR disclosures. However, such disclosures are restated at high rates, leading to concerns about reliability. Using two experiments, we investigate how investors react to restatements of CSR disclosures. Results reveal that a negative CSR restatement is decision useful, whereby investors are less willing to invest in a company that corrects a significant overstatement of performance. We also find that features of the environment—the materiality of the CSR issue and the intentionality of the error—affect investors’ reactions to the restatement. Finally, our study demonstrates how CSR restatements affect investment judgments. Specifically, we provide evidence of a “contagion effect,” by which the credibility effects of a CSR restatement transfer to investors’ assessments of financial disclosures. These results inform regulators and practitioners concerned about the ramifications of errors in CSR reporting on nonprofessional investors’ judgments.

Keywords: corporate social responsibility, restatements, disclosure transparency, materiality

JEL Classification: M41

Suggested Citation

Backof, Ann G. and Negangard, Eric Michael and Negangard, Eric Michael and Winchel, Jennifer, CSR Restatements and the Contagion Effect: An Experimental Investigation of Issue Materiality and Intent (October 21, 2020). Available at SSRN: https://ssrn.com/abstract=3388115 or http://dx.doi.org/10.2139/ssrn.3388115

Ann G. Backof

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Eric Michael Negangard

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States
4349247002 (Phone)
4349247002 (Fax)

HOME PAGE: http://www.commerce.virginia.edu/faculty/Pages/FacultyMembers.aspx?FacultyId=102

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States
4349247002 (Phone)
4349247002 (Fax)

HOME PAGE: http://www.commerce.virginia.edu/faculty/Pages/FacultyMembers.aspx?FacultyId=102

Jennifer Winchel (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

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