The Real Effects of Mandatory Nonfinancial Disclosure: Evidence from Supply Chain Transparency
50 Pages Posted: 28 Sep 2021
Date Written: September 24, 2021
This paper studies whether and how mandatory nonfinancial disclosure affects firms’ real decisions. I exploit a disclosure regulation enacted in California, which mandates that firms disclose how they conduct due diligence to address their suppliers’ human rights abuses. I find that treated firms increase their supply chain due diligence, and their suppliers’ human rights performance improves following the regulation. The effects are stronger when firms face greater pressure from non-governmental organizations (NGOs) and socially conscious shareholders, when customers have greater incentives to use the newly disclosed information, and when the regulation leads to a larger increase in information comparability. Collectively, the results suggest that mandatory nonfinancial disclosure can affect firms’ real decisions through market mechanisms and that stakeholder responses play a key role.
Keywords: Real effects, Nonfinancial Disclosure, Supply Chain, Due Diligence, Activist Group, Customer Response
JEL Classification: G14, G18, G38, J80, K22, K31, K38, L23, M41, M48
Suggested Citation: Suggested Citation