Jingwen GE
Professeur assistante de finance - ESSCA

Although voluntary disclosures of Corporate Social Responsibility (CSR) news are becoming increasingly common, the releases of CSR news are often carried out by certain types of firms and during certain time periods. So, when are these voluntary disclosures usually made, and by which firms?

Recent years have witnessed a widespread increase in interest in nonfinancial information disclosure among both academics and practitioners. The consensus has been that publishing regular reports on the social and environmental impacts of firms’ activities helps engender more transparency and confidence in firms’ stakeholders and improves the assessment of a firm’s investment opportunities and risks.

As a result, not only have the legal requirements of nonfinancial information disclosure become stricter, but firms are also becoming more willing to release nonfinancial information. In addition to creating standalone corporate social responsibility (CSR) reports, firms are increasingly more active in broadcasting their social and environmental efforts on social media sites such as Twitter and Facebook.

In an article published in the Journal of Business Finance and Accounting, we study a firm’s voluntary disclosure of nonfinancial information from web-scraped CSR news from CSRwire, which is an online platform that allows its member firms to voluntarily release news on social responsibility and sustainability. Particularly, we investigate whether firms experiencing undervaluation (most likely due to a lack of information in the market) tend to voluntarily release more nonfinancial information.

A concern on asset mispricing

As is well stated in the literature, one of the most common causes of asset mispricing is information asymmetry. Much evidence suggests that investors prefer better-informed securities because they are more likely to be priced at a fair value of their underlying assets.[1] & [2]

Firms experiencing undervaluation should have an incentive to release additional information to reassure investors, signal the quality of their assets, and restore their stock prices. As environmental and social disclosures reduce information asymmetry between firms and their stakeholders[3], we posit that in times of undervaluation, firms tend to release additional nonfinancial information.

Based on an instrumental approach using downward price pressure induced by mutual fund outflow as an instrument for stock undervaluation, we find a positive and significant relationship between stock undervaluation and the probability of issuing CSR news.

This result is consistent with our expectation that undervalued firms tend to issue nonfinancial information to improve their informational environments and to restore stock prices. This result remains robust to the use of alternative estimation models, alternative measures of stock mispricing, and different matching approaches.

Furthermore, our duration analysis results confirm the time series implications of stock market mis-valuation: in periods when the market price of a firm’s stock is lower than the stock’s price in ‘normal’ periods, a firm releases CSR news more frequently.

Motivations to release CSR news

With the understanding that firms are more likely to release CSR news during undervalued periods, we also investigate the underlying channels that explain why mispriced firms prefer to issue nonfinancial information. Our interest mainly lies in whether the disclosure of corporate social responsibility activities reflects firms’ incentives to release extra information other than routine annual CSR reports, to improve stock price information and to mitigate analyst forecast errors.

Firms that initially exhibit lower CSR involvement are more likely to benefit from releasing new CSR information than other firms, as such voluntary disclosure is likely to enhance the firms’ reputation and signal their ability to manage the complexity of their nonfinancial activities.

Analogously, firms with poor price information and high analyst forecast error, which both point to a lack of relevant information in the market, may also have a motivation to release additional nonfinancial information. Especially if an undervalued firm has limited means to disclose financial-related information via market channels or has no promising investment plans to release at the current time, the incentive to disclose nonfinancial information in the hope that investors will recognize the quality of the projects in which the firm invests might be even stronger.

Our results confirm the above views: Undervalued firms with low CSR engagement, high stock price opaqueness and high analyst forecast error, are more prone to releasing additional nonfinancial information.

Benefits of CSR news releases

Since a firm’s ultimate objective of voluntarily releasing CSR news is to improve the mis-valuation situation, it is crucial to examine whether this objective can be achieved. Therefore, we investigate whether releasing nonfinancial information enhances firm value. Our results suggest that in general, releasing CSR news does not help firms gain significant excess stock returns.

However, for undervalued firms, and especially undervalued firms with high information asymmetry, it does lead to a positive stock market reaction. Specifically, a typical undervalued firm shows an excess return of 45 base points within a Day -3 to Day 3 time window according to the Fama-French three-factor model.

Our results are unambiguous: Releasing CSR news during the period when a firm is undervalued is beneficial to the undervalued firms. This explains our observations about the fact that undervalued firms are more likely to release CSR news.

Behind the voluntary disclosure of CSR news

Taken together, our results provide compelling evidence that undervaluation in the stock market greatly drives firms’ decisions regarding voluntary nonfinancial information disclosure and eventually helps improve the market performance of firms facing ex ante undervaluation problems.

Moreover, our analyses affirm the importance of nonfinancial information for investors and other stakeholders who, in making investment decisions, rely not only on information conveyed by financial statements but also on nonfinancial information.

In terms of policy implications, our results indicate that CSR is not merely about charity and philanthropy. Instead, it should be embedded in the functioning of various activities, as it leads to a virtuous circle in helping to alleviate information asymmetry and market imperfections, supporting the European Commission’s strategy (e.g., the Regulation on Taxonomy, the Green Deal and the 2019 European Directive on ESG Disclosure) to incorporate environmental, social, and governance (ESG) factors.


[1] Dong, M., Hirshleifer, D., Richardson, S., and Teoh, S. H. (2006). Does investor misvaluation drive the takeover market? Journal of Finance, 61, 725-762.

[2] Elliott, W. B., Koëter-Kant, J., and Warr, R. S. (2008). Market timing and the debt-equity choice. Journal of Financial Intermediation, 17, 175-197.

[3] Cormier, D., Aerts, W., Ledoux, M. J., and Magnan, M. (2009). Attributes of social and human capital disclosure and information asymmetry between managers and investors. Canadian Journal of Administrative Sciences, 26, 71-88.

Benlemlih, M, Ge, J, Zhao, S. Undervaluation and non-financial information: Evidence from voluntary disclosure of CSR News. J Bus Fin Acc. 2021; 48: 785– 814. https://doi.org/10.1111/jbfa.12505

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