Does Disclosing Well Lead to Doing Good?

Abstract

We examine the impact of disclosure-based environmental regulations on corporate innovation using a quasi-natural experiment in China. We find that firms increase green innovation, but not non-green innovation, following a mandate that requires them to regularly disclose their corporate social responsibility (CSR) activities. Further analyses show that the CSR disclosure mandate leads to higher media coverage of disclosing firms’ environmental issues, and the increase mainly comes from negative environmental news. By contrast, voluntary CSR disclosure does not affect corporate green innovation, and it increases positive but not negative environmental media coverage. These findings suggest that (1) it is the mandatory feature of the mandate, not the act of disclosure, that matters most for the positive effect on corporate green innovation; and (2) the negative media coverage induced by mandatory CSR disclosure plays a disciplinary role and promotes green innovation, while the positive media coverage induced by voluntary CSR disclosure does not. Additional analyses document a high level of quality of the green patent applications filed subsequent to the mandate, indicating that they are unlikely associated with greenwashing.

Keywords: Green innovation, corporate social responsibility, mandatory disclosure

JEL Classification: G38, O31, Q56