Mandated Social Disclosure: An Analysis of the Response to the California Transparency in Supply Chains Act of 2010
- 1.1k Downloads
In this study, we examine investor and firm response to the California Transparency in Supply Chains Act (CTSCA) of 2010. The CTSCA requires large retail and manufacturing firms to disclose efforts to eradicate slavery and human trafficking from their supply chains and is a rare example of mandated corporate social responsibility disclosure. Based on a sample of 105 retail companies subject to the CTSCA, we find a significant negative market reaction to the passing of the CTSCA. Furthermore, we find that the reaction is significantly more negative for larger firms and companies facing greater supply chain risks (apparel and footwear retailers), suggesting that investors place a negative value on exposure to legitimacy threats in the social domain. With respect to company disclosure response, we document relatively high compliance with the legislation, although we also find that the disclosure response appeared to be more symbolic than substantive in nature. Finally, our analysis indicates that both disclosure choice and disclosure extensiveness were significantly higher for the high-supply chain risk companies, suggesting that the response was influenced by concerns with strategic legitimation. Overall, the limited quality of disclosure suggests that, without additional rules and guidance, mandates alone may not lead to meaningful social disclosure.
KeywordsSupply chains Corporate social responsibility Disclosure Regulations
- Berthelot, S., Cormier, D., & Magnan, M. (2003). Environmental disclosure research: Review and synthesis. Journal of Accounting Literature, 22, 1–44.Google Scholar
- California Transparency in Supply Chains Act of 2010 Senate Bill 657 (CTSCA). (2010). Available at http://www.state.gov/documents/organization/164934.pdf.
- Deegan, C. (2014). An overview of legitimacy theory as applied within the social and environmental accounting literature. In J. Bebbington, J. Unerman, & B. O’Dwyer (Eds.), Sustainability accounting and accountability (2nd ed., pp. 248–272). London: Routledge.Google Scholar
- Higgins, C., & Larrinaga, C. (2014). Sustainability reporting: insights from institutional theory. In J. Bebbington, J. Unerman, & B. O’Dwyer (Eds.), Sustainability Accounting and Accountability (2nd ed., pp. 273–285). London: Routledge.Google Scholar
- Loss, L. (1988). Fundamentals of securities regulations (2nd ed.). Boston: Little Brown & Company.Google Scholar
- Milne, M. J., & Patten, D. M. (2002). Securing organizational legitimacy: An experimental decision case examining the impact of environmental disclosures. Accounting, Organizations and Society, 15(3), 372–405.Google Scholar
- Not for Sale. (2012). Apparel industry trends: From farm to factory 2012. Retrieved from www.free2work.org/trends/apparel/Apparel-Industy-Trends-2012.pdf.
- Sneed, T. (2014). Why cleaning-up the fashion industry is so messy. U.S. News & World Report. Retrieved from http://www.usnews.com.
- Watts, R., & Zimmerman, J. (1986). Positive accounting theory. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
- White, G. B. (2015). All your clothes are made with exploited labor. The Atlantic. Retrieved from http://www.theatlantic.com.