Essays on Economic and Behavioral Consequences of CSR Reporting Regulations

Abstract

In recent years, an increasing number of countries have passed corporate social responsibility (CSR) reporting regulations for all or a subset of listed firms. An important feature of the CSR reporting regulations worldwide is that the regulations are relatively soft in the sense that most countries pass disclosure regulations that contain ‘comply-or-explain’ provisions. This dissertation contains three distinct studies that collectively examine economic and behavioral consequences of CSR reporting regulations. Study One surveys a large empirical evidence in accounting, finance, economics, law and management to evaluate the impact of CSR reporting regulations on (i) reporting quality, (ii) capital-markets and (iii) firm behavior. The survey indicates that CSR reporting regulations generate significant costs for affected firms around legislative events leading up to the CSR regulations. The survey also indicates that the CSR reporting regulations cause significant changes in firm behavior, and lead to improved social and environmental performance of affected firms. However, reporting and disclosure quality remain low. Based on this, Study Two experimentally investigates how comply-or-explain disclosure regulations affect managers’ disclosure recommendations of a negative event affecting the firm’s underlying economics. Results reveal that managers are more likely to make disclosure of a negative event in a comply-or-explain regulatory system relative to a voluntary regime. In addition, the impact of comply-or-explain regulation on managers’ disclosure judgements is larger when the firm’s prior disclosure policy is unknown than when it is known to be biased toward no disclosure. Finally, Study Three reports the results of an experiment examining investors’ reactions to the incorporation of CSR performance measures in regulated financial reports relative to reporting CSR measures in standalone CSR reports. Results show that reporting CSR measures in standalone CSR reports triggers stronger reactions from investors, such that the influence of CSR information on investors’ firm value estimates are stronger when CSR information is reported in a separate report relative when integrated in a financial report. Further, more investors misclassified CSR information as assured when integrated in a financial report relative to when reported in a separate report. Consequently, misclassifying investors rated credibility of CSR information higher and derived higher firm value estimates compared to investors who correctly classify this information as non-assured. Overall, studies in this dissertation inform the international CSR reporting regulations and standard-setting process.