Does Mandatory Corporate Social Responsibility Disclosure Affect Share Price Responses to Earnings Announcements? Evidence from China

We utilize the mandatory corporate social responsibility (CSR) disclosure regulation in China as an exogenous shock to evaluate the impact of such disclosures on investors as end users of accounting information based on the analysis of share price responses to earnings announcements. Specifically, we observe that firms with mandated CSR disclosure experience an increase in earnings response coefficient and a decrease in post-earnings announcement drift. Furthermore, these effects are greater among CSR-sensitive industries, state-owned enterprises, and lower accounting quality firms. Additional analysis also reveals that these effects vary by the quality of CSR disclosure and CSR performance. These findings suggest that CSR disclosure provides incremental information that is useful for investors to assess firms' future prospects and uncertainties. A broader implication of our study is that mandating CSR disclosure could improve market information efficiency and benefit outside investors.