Events

I study whether and how mandatory nonfinancial disclosure affects firms’ real decisions by leveraging non-investor stakeholders’ responses. I exploit a disclosure regulation enacted by California in 2012, which mandates that firms disclose how they conduct due diligence toensure their suppliers’ labor-law compliance. I find that affected firms increase their due diligence, and that firms with more (less) due diligence experience an increase (decrease) in market share. The effect is stronger when firms’ disclosures are monitored by activist groups (e.g., NGOs), when customers have greater incentives to use the newly disclosed information, and when the law leads to a larger increase in information comparability. Collectively, the results suggest that mandatory nonfinancial disclosure can affect firms’ real decisions through market mechanisms and that stakeholder responses play a key role.