As part of the Securities and Exchange Commission’s revision of Regulation S–K, which lays out reporting requirements for publicly-listed companies, many investors proposed the mandatory disclosure of sustainability information in the form of environmental, social and governance data. However, progress is contingent on collecting evidence regarding which sustainability disclosures are financially material. To inform this issue, we examine materiality standards developed by the Sustainability Accounting Standards Board. Firms voluntarily disclosing more SASB-identified sustainability information exhibit greater price informativeness, while the disclosure (...) of non-SASB information does not relate to informativeness. The results are robust to a changes analysis and a difference-in-differences analysis that exploits the staggered release of SASB standards across different industries over time. We also document stronger results for firms with higher exposure to sustainability issues, poorer sustainability ratings, greater institutional and socially responsible investment fund ownership, and coverage from analysts with lower portfolio complexity. (shrink)

We investigate the effectiveness of corporate social responsibility disclosure in protecting corporate reputation following financial restatements. As expected under legitimacy theory, firms can signal their legitimacy via nonfinancial disclosure after the negative effects of financial restatements. Our results show that restating firms make substantial improvements to overall CSR disclosure quality by changing their standalone reports to a more conservative tone, increasing readability and report length, even though they strategically disclose less forward-looking and sustainability-related content. Such improvements are more pronounced in (...) restating firms with prior low-quality CSR disclosure. Moreover, restating firms with CSR disclosure have smaller forecast errors than non-CSR disclosers, yet the change in CSR disclosure after restatements does not further improve analyst forecast accuracy. Finally, we find that compared with nondisclosers, restating firms with CSR disclosure suffer smaller firm value losses. Overall, the evidence supports the view that consistent CSR reporting alleviates reputational damage and plays an insurance-like or value protection role during crisis periods. (shrink)

The role of board secretaries is a unique institutional feature in China. Individuals in this senior executive role are responsible for coordinating information disclosure. We study the impact of board secretaries on management earnings forecasts and find that their legal expertise, accounting expertise and foreign experience help improve management earnings forecast quality. The quality of forecasts, as indicated by their occurrence, frequency, precision and accuracy, is also positively associated with the role duality and equity holdings of board secretaries and negatively (...) associated with their political connection. The quality of forecasts is found to increase the compensation of board secretaries. Finally, we show that the equity holding of board secretaries reduces litigation risks and increases corporate philanthropic giving. (shrink)

In this study, we investigate whether firms recognised as superior sustainability performers respond differently to climate change regulatory, physical and other risks/opportunities and examine whether such differences predict sustainability performance in subsequent years. Further, we seek to gain insights from climate change programs and strategies of both superior and inferior sustainability performers. Adopting mixed methods, we use a merged sample from the Top500 world’s largest firms and the Global 100 Most Sustainable Corporations. Our quantitative analyses show that greater awareness of (...) physical and other climate change opportunities is what sets superior performers apart, and that superior future sustainability performance is related to a firm’s stated awareness of these two types of opportunities. Qualitative content analysis of narrative disclosures confirm that superior performers provide more detailed description of climate change strategies that go beyond managing climate change risks. Our study contributes to the limited amount of research highlighting the value of proactively seeking opportunities rather than merely focussing on risk management. (shrink)

This paper investigates whether and how the disclosure tone of earnings conference calls predicts future stock price crash risk. Using US public firms’ conference call transcripts from 2010 to 2015, we find that firms with less optimistic tone of year-end conference calls experience higher stock price crash risk in the following year. Additional analyses reveal that the predictive power of tone is more pronounced among firms with better information environment and lower managerial equity incentives, suggesting that extrinsic motivations for truthful (...) disclosure partially explain the predictive power of conference call tone. Our results shed light on the long-term information role of conference call tone by exploring the setting of extreme future downside risk, when managers have conflicting incentives either to unethically manipulate disclosure tone to hide bad news or to engage in ethical and truthful communication. (shrink)

This paper examines the relationship between loan guarantees and audit fees as well as the moderating effect of corporate social responsibility. We find that guaranteeing another entity’s debt significantly increases firms’ own audit fees. However, the disclosure of CSR information attenuates the fee-increasing effects of loan guarantees. A closer examination reveals that the role of CSR is attributable to the information effect rather than the signal effect. Our results are robust to the use of a quasi-natural experiment, a propensity score (...) matching analysis, a Heckman two-stage treatment effect model and alternative proxies. This work makes new contributions to the current understanding of the consequences of loan guarantees, determinants of audit fees and value of CSR disclosure. (shrink)

Many countries have regulations that require firms to engage in minimum levels of corporate social activities in areas such as the environment and social welfare. In this paper, we argue that changes in a firm’s compliance with CS regulations are reflected in its reputation for corporate social responsibility, which affects the firm’s performance. The performance impacts depend on whether the firm’s CSR reputation in the current and prior periods is positive, neutral, or negative. Our theoretical framework draws on the reputation (...) literature and on the concepts of recency bias, which weights the present more heavily than the past, and negativity bias, which weights negative assessments more heavily than neutral or positive assessments. We test our hypotheses on a sample of 7317 banks over 1992–2007 where we compare a bank’s return on assets with its current and prior compliance ratings under the U.S. Community Reinvestment Act. We find that changes in CSR reputation have predictable, asymmetric, and sizeable impacts on firm performance. For example, for an average bank with $1 billion in assets, gaining a positive CSR reputation translates into a rise in profits of 4.04%; gaining a negative CSR reputation results in a drop in profits of − 7.8%. (shrink)