Does information content of a corporate social responsibility report matter for stock mispricing? Evidence from China

We examine the impact of the information content of a firm's corporate social responsibility (CSR) report on stock mispricing using a sample of Chinese firms from 2007 to 2021. By leveraging the recent advances in textual analysis, we apply the Word2Vec technique to detect the information content of a focal firm's CSR report. Our findings suggest that the degree of a focal firm's stock mispricing decreases with increased information content of its CSR report. The results remain robust after considering a variety of sensitivity tests. Mechanism analyses reveal that the information content of a CSR report mitigates stock mispricing by reducing information asymmetry and alleviating investor irrational behavior. Heterogeneity analysis shows that the effect is more salient when firms face higher degree of uncertainty, both at the macroeconomic and industrial levels. Additionally, we document that a higher degree of information content of a CSR report contributes to a higher firm value.