The Real Effects of Conflict Minerals Disclosures

Abstract

Section 1502 of the Dodd–Frank Act requires Securities and Exchange Commission issuers to file conflict minerals disclosures (CMD) that indicate whether their product(s) contain tin, tungsten, tantalum, and gold that originate from the Democratic Republic of Congo and its nine neighboring countries (collectively referred to as “covered countries”). We examine the disclosures’ real effects on firms’ resourcing behavior and on regional conflict mitigation related to natural resources. Our analysis shows that CMDs compel companies to move toward responsible sourcing due to greater public attention, positive market reactions, and positive changes in socially responsible investor holdings, consistent with the reputational cost hypothesis. We also find that after the CMD rule takes effect, conflict incidence in the mining regions of the covered countries decreases relative to those of the non-covered countries. Overall, our evidence suggests that enhancing transparency regarding conflict mineral sourcing may help to alleviate a region’s resource curse.

Keywords: Real effects, Dodd-Frank Act, Conflict minerals disclosures, Nonfinancial disclosure, Corporate social responsibility, Responsible sourcing, ESG, Due diligence, Supply chain, Resource curse

JEL Classification: C23, D22, D74, G14, G18, G38, K2, L2, M41, M48, O13, Q34