Corporate Purpose Disclosure in the Annual Report: Substance or Cheap Talk? An Experimental Analysis of Non-professional Investors’ Perception

Posted: 1 Apr 2024

See all articles by Kevin Gauch

Kevin Gauch

Technical University of Darmstadt - Department of Accounting and Auditing

Jochen Theis

University of Southern Denmark

Date Written: March 28, 2024

Abstract

With the shift away from shareholder primacy towards stakeholder management, an increasing number of companies formulate and disclose their corporate purpose, often also as part of the annual report. A corporate purpose describes the reason for the existence of a company, which can provide an overarching framework to justify the company in society. Using US non-professional investors, we experimentally investigate the effect of disclosing a corporate purpose in the annual report on their willingness to invest. We furthermore examine the interaction between a corporate purpose disclosure and an adverse event for the company. Our results suggest that disclosing a stakeholder-oriented corporate purpose does not directly increase the willingness to invest because of significant opposing mediations of induced perceptions of social contribution and purpose-washing (similar to greenwashing) of the company. We further find that a stakeholder-oriented corporate purpose disclosure acts as an insurance if not contradicted by the characteristics of the adverse event.

Keywords: Corporate Purpose; Corporate Governance; Insurance Effect; Non-Professional Investors; Experiment.

JEL Classification: G34, M14, M41.

Suggested Citation

Gauch, Kevin and Theis, Jochen, Corporate Purpose Disclosure in the Annual Report: Substance or Cheap Talk? An Experimental Analysis of Non-professional Investors’ Perception (March 28, 2024). Available at SSRN: https://ssrn.com/abstract=4776484

Kevin Gauch (Contact Author)

Technical University of Darmstadt - Department of Accounting and Auditing ( email )

Hochschulstr. 1, FG BWL4
Darmstadt, 64289
Germany

Jochen Theis

University of Southern Denmark

Universitetsparken 1
DK-6000 Kolding, 6000
Denmark

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