Mandated Social Disclosure: An Analysis of the Response to the California Transparency in Supply Chains Act of 2010

Rachel N. Birkey (), Ronald P. Guidry (), Muhammad Islam () and Dennis M. Patten ()
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Rachel N. Birkey: Illinois State University
Ronald P. Guidry: Illinois State University
Dennis M. Patten: Illinois State University

Journal of Business Ethics, 2018, vol. 152, issue 3, No 13, 827-841

Abstract: Abstract In this study, we examine investor and firm response to the California Transparency in Supply Chains Act (CTSCA) of 2010. The CTSCA requires large retail and manufacturing firms to disclose efforts to eradicate slavery and human trafficking from their supply chains and is a rare example of mandated corporate social responsibility disclosure. Based on a sample of 105 retail companies subject to the CTSCA, we find a significant negative market reaction to the passing of the CTSCA. Furthermore, we find that the reaction is significantly more negative for larger firms and companies facing greater supply chain risks (apparel and footwear retailers), suggesting that investors place a negative value on exposure to legitimacy threats in the social domain. With respect to company disclosure response, we document relatively high compliance with the legislation, although we also find that the disclosure response appeared to be more symbolic than substantive in nature. Finally, our analysis indicates that both disclosure choice and disclosure extensiveness were significantly higher for the high-supply chain risk companies, suggesting that the response was influenced by concerns with strategic legitimation. Overall, the limited quality of disclosure suggests that, without additional rules and guidance, mandates alone may not lead to meaningful social disclosure.

Keywords: Supply chains; Corporate social responsibility; Disclosure; Regulations (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (20)

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DOI: 10.1007/s10551-016-3364-7

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