Stock Market Reactions and Corporate Social Responsibility (CSR) Disclosure in the Context of Negative CSR Events
47 Pages Posted: 21 Oct 2019 Last revised: 5 Dec 2020
Date Written: December 4, 2020
This paper analyses stock market reactions to major negative corporate social responsibility (CSR) events. In that context, it also examines whether disclosing CSR information in the annual reports helps firms mitigate the negative effects of subsequent events. To this end, we followed a three-step procedure. First, applying the methodology of event studies, we collected and analyzed data on the major CSR events logged in the REPRisk® database. Second, we used textual analysis to examine topic-specific CSR disclosure in the annual reports of all firms in our sample. Our data cover the period 2011 - 2014. Our results show that stock markets react significantly negative to the occurrence of negative CSR events. Firms whose annual reports disclose more CSR information before an adverse CSR event occurs are better protected against these negative market reactions. Specifically, we show that markets react more positively to firms with a stronger upfront CSR disclosure. Our results also partly show that firms adjust their subsequent CSR disclosure in the annual report that follows a negative CSR event.
Keywords: Market reactions, CSR disclosure, CSR event, Event study, Textual analysis, Abnormal returns, Shareholder value
JEL Classification: G12, G14, G15, G24, M14, M41, D21, L21, D84
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