Mandated social disclosure

Abstract

PurposeThis paper investigates the market response to the poor quality of reporting on the first mandated set of conflict minerals disclosures in the US setting. The authors examine the reaction for both filing firms at their filing date and non-filing companies at the filing deadline.Design/methodology/approachThe authors use standard market model methods to capture investor response and test for differences across reactions using comparisons of means and regression models. The authors also code reports for a sub-sample of firms and test for the relation between disclosure and market reactions.FindingsThe authors document a significant negative reaction for both filing and non-filing firms, with the latter group suffering a more negative reaction than the filers. The authors also find more extensive disclosure is associated with less negative market reactions. Finally, the authors provide evidence supporting the argument that the more pronounced reaction for the non-filers is due to concerns with incremental implementation costs for these firms.Research limitations/implicationsThe results extend prior research into investor perceptions of exposures to social and political costs. The findings suggest that investors view both poor quality disclosure and lack of response to mandated requirements as increasing such exposures.Practical implicationsThe negative market response could be expected to exert additional pressures on companies to better assess and report on conflict mineral exposures in their supply chains.Social implicationsThe findings suggest investors pay attention to the corporate response to mandated social disclosure requirements, an important finding as mandates for similar types of disclosure appear to be in the offing.Originality/valueThis study is the first to extend the social and political cost exposure literature to analysis of mandated social disclosures.