Do Investors and Analysts Value Strategic Corporate Social Responsibility Disclosures? Evidence from China

Abstract

This paper examines whether strategic corporate social responsibility (SCSR) disclosures are value-relevant for investors and analysts in the context of China. Using a sample of Chinese listed firms from One Belt One Road (OBOR) theme indices, we construct a rating system of SCSR disclosures including five dimensions and twenty indicators and perform a principal component analysis and a non-hierarchical cluster analysis to group sample firms. We find that the market has a positive reaction to SCSR disclosures but the market fails to perceive whether such disclosures are credible. We also find that the number of analysts following a firm is positively associated with its SCSR disclosures and the positive association between SCSR disclosures and analysts following is less pronounced for firms with lower credibility. Additional analyses demonstrate that the higher SCSR disclosure quality the more positive market reaction, and that the higher SCSR disclosure quality the more numbers of analysts following but this positive association between disclosure quality and analysts following is discounted by a firm’s lower credibility. Additional analyses further confirm that the SCSR disclosure mandate has a negative moderating effect on investors’ and analysts’ positive reactions to SCSR disclosures. We do not find convincing evidence that the ownership of foreign institutional investors (QFII) affects investors’ and analysts’ reactions to SCSR disclosures. Finally, our extended analyses reveal that SCSR disclosures have a positive effect on firm performance, which seems to be a plausible reason for investors’ and analysts’ positive reactions to SCSR disclosures.