Undervaluation and Non-Financial Disclosure: Evidence from Voluntary CSR News Releases

Abstract

In this paper, we examine whether stock market imperfection plays a role in a firm’s decision to disclose non-financial information and if yes, what are the underlying channels. To address our questions, we web-scraped corporate social responsibility (CSR) news for a sample of publicly traded non-financial US firms from CSRwire and explored the exogeneous variation in stock valuation driven by institutional price pressure. Our empirical results show that firms facing stock market undervaluation are more likely to release CSR news and the effect is concentrated in firms with low CSR commitment and low stock price informativeness. Lastly, we find evidence that stock market reacts positively to CSR news released by undervalued firms, and more so for undervalued firms with high information asymmetry.

Keywords: Market undervaluation, voluntary disclosure, non-financial information, information asymmetry, institutional price pressure

JEL Classification: G30, G32, D03, D22