Stock Market Reactions and CSR Disclosure in the Context of Negative CSR Events

This paper analyses stock market reactions after the occurrence of major negative corporate social responsibility (CSR) events and the possibility of mitigating these effects through the upfront provision of CSR information in firms’ annual reports. For this purpose, we follow a three-step procedure. First, we analyse the major concerns gathered from REPRisk® data via event study analysis. Herein, we cover a window of 5 to 20 days. Second, we analyse all annual reports of the firms mentioned in the covered period over the entire time horizon and conduct a textual analysis to examine firms’ disclosure of CSR information. Finally, we draw conclusions from the two approaches and show that firms with more upfront CSR information suffer from stronger negative market reactions after the occurrence of a negative CSR event. Herein, we show that if the occurrence of a negative CSR event conflicts with investors’ expectations, then it leads to an important update of investors’ beliefs about firms’ prospects. Our results also confirm that such an event leads to an adjustment of the subsequent year’s CSR disclosure in the annual reports.