The Real Effects of Supply Chain Transparency Regulation – Evidence from Section 1502 of the Dodd-Frank Act

Abstract

Section 1502 of the Dodd-Frank Act requires SEC-registered issuers to conduct supply chain due diligence and submit conflict minerals disclosures (CMDs) that indicate whether their products contain tantalum, tin, tungsten, or gold (3TG) sourced from the Democratic Republic of the Congo (DRC) or its neighboring countries (“covered countries”). Consistent with the reputational cost hypothesis, we find that heightened public attention to CMDs increases responsible sourcing. After Section 1502 takes effect, we find higher demand for 3TG products processed in certified smelters, decreased conflicts in covered countries’ mining regions relative to other regions, and reduced sensitivity of conflict risk to conflict minerals’ price spikes. Lastly, we find that conflicts decrease in Eastern DRC territories with prevalent 3T (tantalum, tin, and tungsten) mines but increase in territories with prevalent gold mines. Overall, our findings highlight the real effects of enhanced supply chain transparency regulation.

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