How Do Firms Respond to a Shift from Mandatory to Voluntary Disclosure? Evidence from Corporate Charitable Donations Disclosures in the UK

• In Event: Capital Markets Research III

Abstract

This paper analyzes firms’ commitment to CSR-related disclosure using a unique regulatory shift from mandatory to voluntary disclosure in the UK, which leaves out the requirement for firms to disclose their corporate charitable donations on their annual reports. We examine firms’ responses along a number of different dimensions including disclosure levels, corporate charitable spending and agency conflicts. Our analysis use hand-collected data from firms’ disclosures of corporate charitable activities on their annual reports. We develop a disclosure index to measure disclosure levels of corporate charitable donations. Using pre-post tests on 150 UK firms, we find that following the mandatory-to-voluntary disclosure shift, firms disclose less information on their corporate charitable donations, decrease their charitable donations, and have greater agency conflicts. However, the decline in disclosure levels is less pronounced for firms with good corporate governance mechanisms. Overall, our results suggest the lack of firms’ commitment in their disclosure on corporate charitable donations as long as it is not legally required. These findings also suggest that the shift from mandatory disclosure to voluntary results in the existence of negative externalities.

Authors

• Nava COHEN, New Jersey City University

• Ionela-Irina Andreicovici, Essec Business School

• Alessandro Ghio, Monash University - Caulfield