The Real Effects of Mandatory Nonfinancial Disclosure: Evidence from Supply Chain Transparency

50 Pages Posted: 28 Sep 2021

See all articles by Guoman She

Guoman She

The University of Hong Kong - Faculty of Business and Economics

Date Written: September 24, 2021

Abstract

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

She, Guoman, The Real Effects of Mandatory Nonfinancial Disclosure: Evidence from Supply Chain Transparency (September 24, 2021). Available at SSRN: https://ssrn.com/abstract=3929796

Guoman She (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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