The paper this week is a useful companion to one I highlighted back in May. The May paper came to the conclusion, using the same before and after study approach made possible by China mandating Corporate Social Responsibility (CSR) reporting for firms in December 2008, that there was an effect (down) on pollution levels subsequently [It’s here at Pollution Levels Following Mandatory CSR if you want another look].
The paper highlighted today, from Yi-Chun Cheng, Mingi Hung and Yongxiang Wang from the Hong Kong University and University of Southern California respectively, looks at the cost to firms.
China is particularly worth studying as the CSR obligation is mandatory. There have been studies from other markets that conclude there are firm benefits to higher CSR standards; but those studies have relied on data from firms that have voluntarily increased their CSR commitment.
What the researchers find here is ROE and ROA fall for firms after mandatory CSR reporting is introduced and so there is a cost to shareholders. Stock prices also fall as investors sense the lower returns to come. The public do well as firms, consistent with the other work flagged, do reduce their waste water and SO2 emissions. Worker fatalities also fall in dangerous industries and, as you might expect, SOEs are among the most active in the CSR space due to the political importance of the issue. However, they are among the poorest in terms of how effective their CSR spending ultimately ends up being.
There’s an interesting aside here and one worth remembering when considering the various pushes underway presently to make firms do this or that. If something was in a firm’s best long term interest wouldn’t they (at least a large number of them) be doing it already?
You can read the paper in full via this link Mandatory CSR Disclosure.
Happy Sunday.