Working Paper: NBER ID: w28159
Authors: Jean Etienne De Bettignies; Hua Fang Liu; David T. Robinson
Abstract: We develop and test a model in which firms can make non-verifiable statements about their CSR engagement, and hence may have incentives to mislead markets with exaggerated CSR claims. Firms may privately receive a signal correlated with their CSR engagement - e.g. a measure of greenhouse gas emissions - and have discretion over whether to publicly disclose it. Based on whether a signal is disclosed to them, and on what the signal is, markets form beliefs about the firm's CSR activities and the truthfulness of its claims. The model illustrates the disciplining effect of ex post private signal availability on firms' ex ante reporting on their CSR engagement. We test the model using a difference-in-differences approach that exploits special features of the introduction of the UK Companies Act of 2013, and find evidence supporting the model's predictions.
Keywords: Corporate Social Responsibility; Regulatory Oversight; Greenhouse Gas Emissions; Environmental Economics
JEL Codes: D62; J31; M14; M52; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Effective regulatory oversight (G18) | Compliance with regulations (G18) |
| Weak regulatory oversight (G18) | Increased CSR engagement (M14) |
| Insufficient regulatory oversight (G18) | CSR engagement (M14) |
| Increased regulatory oversight (G18) | Decreased CSR activity (G39) |
| Mandatory greenhouse gas emissions disclosure (Q52) | Lower CSR ratings (G38) |