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New University of California Study Uses CSRwire to Prove 'Voluntary Disclosure Theory'

An evaluation of CSRwire members' press releases reveals that it does pay to be green.

Submitted by: Joe Sibilia

Posted: Feb 14, 2012 – 08:26 AM EST

Tags: transparency, csr, csrwire, shareholder value, sustainability


BY Joe Sibilia

It’s a bold headline supported by a recent independent study by two professors at the University of California at Davis and Berkeley titled Going Green: Market Reaction to CSR Newswire Releases. [Note: The study was conducted independently and CSRwire was first notified when the findings were released on January 30, 2012]

Management Professors Paul Griffin and Yuan Sun wanted to determine whether voluntary disclosure can lead to an increase [or decrease] in companies’ shareholder value. After an exhaustive search for publicly available disclosures, the two settled on 11 years of comparable content on CSRwire.com.  

“The discloser companies in our study received an aggregate boost in market value from their CSR newswire releases of approximately ten billion dollars…” 

Voluntary Disclosure Theory

However, let’s forget the affect CSRwire has on market value for a moment and concentrate instead on voluntary disclosure theory, specifically as it pertains to Greenhouse Gas Emissions (GHG). Voluntary disclosure theory is a relatively new idea that attempts to predict that an optimal disclosure decision should produce an overall net benefit for shareholders, and that such net benefit should decrease in public information availability.

Intuitively, we agree and subscribe to the theory.

Practically, however, too much climate change disclosure could increase proprietary disadvantages, litigation and insurance costs. Managers must balance the needs of both. On the other hand, too little disclosure could trigger adverse selection problems, increase investor discontent and raise the cost of capital. As I wrote in a recent post that evidenced a 2011 Harvard Business School study:

“Changing and uncertain views about the appropriate balance of companies’ profit and environmental and social goals further complicate a voluntary green disclosure decision. So it is unclear that we would observe empirical results for voluntary climate change disclosures consistent with the theory (and with findings in other settings).”

The results of the professors' research were positive.

Market Reaction to CSRwire Releases

Their study found that GHG emissions disclosure is relevant to corporate value and shareholders price them as an off-balance sheet liability. Some argue that there is sparse evidence that other non-financial disclosures effect a price differential, possibly because GHG has a higher profile; but, we argue that GHG is just one of at least a number of non-financial impacts that have a material impact on shareholder value. 

stock priceIronically, the study also found that small companies with less available public information rely on voluntary disclosure and benefit most.

Further, the mean adjusted share price increased significantly for small companies in a limited public information environment “by 2.32 percent over days -2 to 2 around the CSR newswire release date.” That's not only great news for CSRwire members but positive news all around for corporations becoming comfortable with voluntary disclosure.

Additionally, regarding emission-intensive companies, the evidence suggested that 8-K climate change disclosures trigger a negative reaction from shareholders valuing voluntary disclosure of non-financial information. Suspicion of the 8-K filing, therefore, tends to be high in comparison to voluntary disclosures through CSRwire.

Scope of Analysis: 10 Years & Over 18,000 Voluntary Disclosures

Using CSRwire and our archives, the authors were able to study a large sample of disclosures, spread over several years, for a wide range of industries, through a single channel. They reviewed over 18,588 releases and selected 575 between the years 2000 and 2010 for deeper analysis.

A comprehensive review of the study evidences an interesting footnote worth deliberating on:

“We also checked to verify that CSR newswire conveys fresh information to users. For each CSR release, we first examined the company’s website to determine whether the CSR release in our sample is new information for investors."

Further, the professors found that in all but two cases, the company’s website (often in the news section) disclosed the CSR release on the same date as its release on CSRwire. In two cases, the companies disclosed the same news on their websites one day before the release date on CSRwire.

They also seconded their efforts by searching Edgar for any potential press releases about CSR disclosure as attachments to an 8-K filing. Their grand total: One.

However, the 8-K filing date followed the day of the release on CSRwire.

Connecting Voluntary Disclosure With [Increased] Shareholder Value

The study promotes a longstanding view that voluntary disclosure will have greater value when associated with a mutually agreed upon set of principles, standards and measures. The authors selected a matched control sample following a four-step process. In addition they used the Fama and French (1993) four-factor model for this purpose and conducted the following regression:

Rt – rft = ! + "1RMRFt + "2SMBt + "3HMLt + "4MOMt + et
(for those that really want to examine the results)

Complete with 38 references and four dramatic tables with mountains of data, the study proxies public information in three ways:

“The number of analysts following the stock, absolute value of analysts’ earnings forecasts errors, and standard deviation in analysts’ earnings forecast (Brennan and Subrahmanyam 1995, Chung et al. 1995, Yohn 1998, Hong et al. 2000, Frankel and Li 2004, Zhang 2006).”

The study adds quantifiable evidence to a growing library of literature on the connection between good corporate citizenship practices and increased shareholder value.

The real value of the study, however, lies in its conclusion: That voluntary disclosures serve shareholders' best interests and increases shareholder value while improving environmental sustainability.

We are honored that the research signifies the importance of CSRwire – and our members' commitment to absolute transparency and responsible business practices. And as a 'Benefit corporation' and a signatory to the United Nations Global Compact, CSRwire is proud to lead the Movement for expanded voluntary disclosure since 1999.


CSR Reduces Cost
New Research: Voluntary Disclosure Produces Positive Returns for Shareholders

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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