Does Voluntary CSR Reporting Affect the Informativeness of Mandatory Financial Disclosures?

Abstract

This study examines whether voluntary CSR reporting affects the informativeness of information contained in mandatory financial disclosures. In particular, I study the impact of CSR reporting on investors’ response to realized earnings released in earnings announcements. I find that voluntary adoption of CSR reporting is associated with higher subsequent earnings response coefficients (ERCs), suggesting that the disclosure of CSR reporting improves the informativeness of earnings announcements. The finding is also consistent with a complementary relation between mandatory and voluntary disclosures, which indicates that mandatory disclosure confirms the credibility of voluntary disclosure. If a similar type of complementary relation between mandatory and voluntary disclosures works in the opposite direction as well (i.e., voluntary disclosure enhances credibility of mandatory disclosure), then higher ERCs could also be observed. Because voluntary CSR reports could complement mandatory quarterly earnings announcements through two non-mutually exclusive channels – improvement in informativeness or credibility, I provide some additional evidence, which suggest that it is the increase in informativeness that leads to the higher response coefficient to quarterly earnings announcements.