Mandatory CSR disclosure and firm investment behavior: Evidence from a quasi‐natural experiment in China

• Author: Moses Jachi,Lovemore Sitsha,Lewis Makosa,Jinkun Yang
• Date: 01 October 2020
• DOI: http://doi.org/10.1002/jcaf.22467
• Published date: 01 October 2020

BLIND PEER REVIEW

Mandatory CSR disclosure and firm investment behavior:

Evidence from a quasi-natural experiment in China

Lewis Makosa

1

| Jinkun Yang

1

| Lovemore Sitsha

2

| Moses Jachi

2

1

School of Accounting, Tianjin University

of Finance and Economics, Tianjin, China

2

School of Accounting, Midlands State

University, Gweru, Zimbabwe

Correspondence

Lewis Makosa, School of Accounting,

Tianjin University of Finance and

Economics, Zhujiang Road 25th, Hexi

District, Tianjin, China.

Email: leemakosa@yahoo.com

Abstract

In this article, we examine the effect of mandatory disclosure of corporate

social responsibility on firm's investment behavior. Our analysis exploits

China's 2008 mandatory requirement that firms disclose their corporate social

responsibility activities. Using difference-in-difference design, the study finds

that firms that were made to report their corporate social responsibility experi-

ence a decrease in the level of investment, but the firm investment efficiency

improved, especially on alleviating over-investments. These findings suggest

that mandatory CSR disclosure alters firm investment behavior and the imple-

mentation of such a disclosure requirement may need the government

support.

KEYWORDS

corporate social responsibility, firm investment behavior, governmental requirement, mandatory

disclosure

1|INTRODUCTION

The growing global focus on economic and environmental

sustainability has raised a trend, which requires firms to

disclose their corporate social responsibility (CSR) activi-

ties. In China, the emission of industrial hazardous and

toxic pollutants into air, discharge of industrial waste into

rivers and other negative effect substances into the envi-

ronment, has aroused the strong demand for CSR infor-

mation disclosure. At the end of 2008, China Securities

Regulatory Commission (CSRC), Shenzhen Stock

Exchange and Shanghai Stock Exchange issued a report

of listed companies, which are required to disclose their

CSR activities (hereafter, mandatory CSR disclosure).

1

This indicated that the government began to regulate

CSR activities by mandatory means. At the Third Plenary

Session of the Eighteenth Communist Part of China

(CPC) central committee, the government listed social

responsibility as one of the top six tasks of enterprises.

Most recent, 2014, the Chinese Academy of Social Sci-

ences issued the blue book on CSR in 2014, emphasizing

the importance of aforementioned responsibility again.

Moreover, the spirit of the Nineteenth of National Con-

gress endows enterprises with new orientations and con-

notations of CSR, requiring them to undertake social

obligations corresponding to volumes of their production

and fulfill social responsibilities corresponding to their

capacity. CSR also developed rapidly under the attention

of various stakeholders. From 2001 to 2018, the number

of firms disclosing CSR reports increased astronomically

from 1 to 1,676 (for both mandatory and voluntary

disclosures).

The strong demand for CSR disclosure, has resulted

in serious economic consequences which has attracted

much attention from the academics. Previous studies of

CSR disclosure mostly focused on the perspectives of

external stakeholders (Brammer & Millington, 2008;

Godfrey, 2005; Krasnikov, Jayachandran, & Kumar,

2009), but less attention has been given to the impact of

internal behavior of enterprises. In fact, a firm's behavior

is affected by its CSR disclosure (Hung, Shi, &

Wang, 2013). Due to legal deterrence brought in by

Received: 29 May 2020 Revised: 21 July 2020 Accepted: 24 July 2020

DOI: 10.1002/jcaf.22467

J Corp Acct Fin. 2020;31:33–47. wileyonlinelibrary.com/journal/jcaf © 2020 Wiley Periodicals LLC 33