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Prior accounting research suggests that firms use narrative disclosure language to bias investor reactions. When disclosing corporate social responsibility (CSR) information, firms can frame the beneficial outcomes of their actions either positively (e.g., improving air quality) or negatively (e.g., reducing greenhouse gas emissions). Using an experiment, this study draws upon expectancy violations theory to build a model that explains how nonprofessional investors react to this unique framing effect. We find evidence that, compared to positive framing, negative framing produces higher firm valuations when prior CSR performance is poor. We also find that when prior CSR performance is good, both positively and negatively framed CSR disclosures can produce favorable investor reactions, but that they do so through different causal paths. These results suggest that firms should carefully consider their disclosure framing choices, and that defaulting to positive frames to produce favorable market responses may be a suboptimal choice.
Joseph Johnson, University of Central Florida
Clark J Hampton, University of South Carolina
Robin W Roberts, University of Central Florida
Robert Folger, University of Central Florida