Does mandatory CSR disclosure improve stock price informativeness? Evidence from China

Highlights:

• Stock price informativeness decreases after China’s 2008 CSR disclosure mandate.
• The rise in information asymmetry corresponds to a decline in informativeness.
• The negative relationship comes from the principal-agent cost of managers.
• Incremental information reflected by the narratives mitigate the negative relation.

Abstract: The disclosure of corporate social responsibility (CSR) information has been attracting increasing attention from practitioners and researchers. This paper examines whether CSR disclosure affects stock price informativeness (SPI) in China by utilizing a propensity score matching and difference-in-difference approach. After the introduction of mandatory CSR disclosure regulation in China, we find that firms’ SPI decreased significantly, while information asymmetry between investors and managers increased significantly. This result is supported by a battery of robustness tests. We also find evidence that a well-developed corporate governance mechanism and incremental information as reflected by the reliability and certainty of the narratives of CSR reports mitigate the negative relation between mandatory disclosure and SPI. Additional analysis indicates that SPI reduction applies mainly to firms under a mandatory CSR program rather than firms that voluntarily disclosed CSR before 2008.

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