The Role of Corporate Social Responsibility (CSR) Information in Supply-Chain Contracting: Evidence from the Expansion of CSR Rating Coverage

Abstract

We examine the effects of CSR information on stakeholder decision-making, specifically on supply-chain contracting decisions. To obtain plausibly exogenous variation in CSR information, we exploit the 2017 CSR rating coverage expansion from Russell 1000 to Russell 2000 firms (hereafter, “treated firms”) by Thomson Reuters Asset4. Using a difference-in-differences design with the previously covered Russell 1000 supplier firms as control group, we find a negative effect of the CSR information shock for treated suppliers with low CSR ratings, which on average experience reductions in the number of contracts and the number of corporate customers. In cross-sectional analyses, we document variation in our treatment effect consistent with two underlying mechanisms: (i) benchmarking of suppliers’ CSR by corporate customers, and (ii) CSR-related public pressure on customer-supplier contracting. Collectively, our findings provide novel evidence on the causal effect of CSR information on stakeholders’ decision-making.