Product Market Competition and Voluntary Corporate Social Responsibility Disclosures

Abstract

This study examines whether and howfirms’voluntary forward-looking nonfinancial disclosure,specifically their corporate social responsibility (CSR) disclosure, is associated with the intensityof product market competition (PMC). Despite the importance of the proprietary cost argument inexplaining corporate disclosure incentives, there is little empirical evidence of the relationshipbetweenfirms’proprietary cost concerns and their voluntary nonfinancial disclosure decisions.Using a reduction in industry-level import tariffs as an exogenous shock to competition intensity,wefind that the likelihood, frequency, and length of stand-alone CSR reports decrease in responseto heightened PMC. We alsofind that higher PMC intensity is associated with a reduced likelihoodof CSR disclosure with external assurance, CSR disclosure in accordance with the GlobalReporting Initiative guidelines, and CSR disclosure integrated withfinancial statements. Ourresults are robust to multiple alternative measures of PMC—namely, the level of nonprice competi-tion, product similarity, and managers’perceptions of competition. Further analysis suggests thatfirms facing intense competition tend to commit more resources to advertising activities afterreducing their CSR disclosure, presumably to mitigate the effect of this reduction. Overall, ourfindings suggest that proprietary cost concerns reducefirms’incentive to report their competition-sensitive CSR activities