Does 10-K Disclosure of Corporate Social Responsibility Signal an Increase in Consumer Preference?

• In Event: Topics in Sustainability and Social Responsibility

Abstract

This paper examines whether the signal that firms send using textual corporate social responsibility (CSR) disclosures in their 10-K filings is consistent with preferential consumer behavior as reflected in firms’ abnormal earnings. We find that, on average, firms with generally-worded CSR disclosures in their 10-Ks exhibit higher abnormal return on selling, general and administrative expenses (SG&A margin) and abnormal operating income, compared to other firms. We also find that the intensity of CSR disclosure (proportion of CSR keywords in 10-K filing) is negatively associated with abnormal gross margin and positively associated with abnormal SG&A margin and that the positive abnormal SG&A margin of CSR-disclosing firms persists to a greater degree than that of non-CSR disclosing firms. Further, we document that the direction of a signal that CSR disclosure sends is not uniform and depends on the type of information provided, such as philanthropy-, business-, product-, environmental- or social-related CSR disclosure. Overall, our paper provides important insight into those signals that CSR disclosure provides to investors by identifying systematic associations between categories of CSR disclosure and firms' economic performance.

Authors

• James N Cannon, Iowa State University

• Zhejia Ling, Iowa State University

• Qian Wang, Iowa State University

• Olena Victoria Watanabe, Iowa State University