Does corporate social responsibility disclosure reduce the information disadvantage of foreign investors?

Abstract

We examine whether corporate social responsibility (CSR) disclosure affects the valuation decision of foreign investors. Our research is set in China's segmented market where some Chinese firms issue two classes of shares with identical voting and cash flow rights, but with one class traded largely by domestic investors and the other traded largely by foreign investors. The foreign-traded shares trade at a discount to the domestically traded shares. We observe that CSR disclosure is inversely related to the foreign share discount. The relationship is more pronounced among firms with lower analyst or media coverage and those firms operating in more polluted regions. Our research suggests that CSR disclosure reduces the information disadvantage of foreign investors and facilitates cross-border investment.