Market Reactions to the First-Time Disclosure of Corporate Social Responsibility Reports: Evidence from China

Abstract

We examine whether investors value the disclosure of first-time standalone corporate social responsibility (CSR) reports, and whether market valuations differ between government-controlled and privately controlled firms. Using a matched sample of Chinese publicly listed firms, we find that CSR initiators have higher market valuations than matched CSR non-initiators, and CSR initiators controlled by the central and local governments have lower market valuations than CSR non-initiators and CSR initiators controlled by private shareholders. Additional analyses demonstrate that CSR initiators with high CSR reporting quality and perceived credibility have higher market valuations than CSR initiators with low CSR reporting quality and medium or low perceived credibility of CSR reporting. We do not find convincing evidence that CSR mandate, litigation risk, and prior stock returns affect market reactions to CSR reporting. Overall, we find that the market values standalone CSR reports, and that CSR reporting quality and perceived credibility are important factors in market valuation.

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Fig. 1

Notes

  1. 1.

    For example, in its 2012 CSR report, China Railway Engineering Corporation explicitly lists investors as one of the principal parties considered in its CSR management.

  2. 2.

    One example is the melamine contamination incident in 2008. Sanlu Corporation, one of China’s largest dairy manufacturers, admitted its products had been contaminated by the toxic chemical melamine. A subsequent report revealed the shocking fact that the top management of the dairy companies involved had been aware of this issue long before the scandal was exposed but continued to provide contaminated dairy products.

  3. 3.

    We address the concern that the signaling effect of standalone CSR reports may not be applicable to mandatory CSR disclosure in “CSR Disclosure Mandate and Market Valuation of CSR Reporting” section.

  4. 4.

    Twenty-eight firms disclose their ultimate controlling shareholders as SOEs. We manually identified whether these SOEs are controlled by the central government or local governments based on information we obtained from the websites of the SOEs or SASAC.

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Acknowledgements

We thank Albert Tsang, Mark Wilson, Greg Shailer, two anonymous reviewers, and workshop participants at the Australian National University and the Journal of Business Ethics Special Issue Conference on Business Ethics in Greater China for helpful comments. Kun Tracy Wang acknowledges financial support from the College of Business and Economics at the Australian National University (R62860 60B4).

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Correspondence to Kun Tracy Wang.

Appendix

Appendix

See Tables 7 and 8.

Table 7 Summary of the variables
Table 8 The Effect of CSR disclosure mandate, litigation risk, and prior stock return on the market valuation of first-time standalone CSR reporting

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Wang, K.T., Li, D. Market Reactions to the First-Time Disclosure of Corporate Social Responsibility Reports: Evidence from China. J Bus Ethics 138, 661–682 (2016). https://doi.org/10.1007/s10551-015-2775-1

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Keywords

  • Corporate social responsibility
  • Performance
  • Market value
  • Ownership
  • Government

JEL Classification

  • G14
  • G32
  • M14
  • M41
  • P31