Understanding the Impact of Mandatory CSR Disclosure on Green Innovation: Evidence from Chinese Listed Firms
| Published date | 01 April 2023 |
| Author | Shenggang Ren,Min Huang,Donghua Liu,Ji Yan |
| Date | 01 April 2023 |
| DOI | http://doi.org/10.1111/1467-8551.12609 |
British Journal of Management, Vol. 34, 576–594 (2023)
DOI: 10.1111/1467-8551.12609
Understanding the Impact of Mandatory
CSR Disclosure on Green Innovation:
Evidence from Chinese Listed Firms
Shenggang Ren,1Min Huang,2Donghua Liu1and Ji Yan3,4
1Business School, Central South University, Changsha, 410083, China, 2Business School, Renmin University of
China, Beijing, 100872, China, 3Durham University Business School, Durham, DH1 3LB, UK, and 4Hunan
University of Technology and Business, Changsha, 410205, China
Corresponding author email: liudonghua@csu.edu.cn
Drawing on the institutional view of legitimacy theory, we examine whether and under
which conditions a policy tool, mandatory corporate social responsibility (CSR) report-
ing, enforced by constituents positively triggers rms to make substantive environmental
responses. Using China’s 2008 CSR reporting policy as a quasi-natural experiment and
the difference-in-differences estimation approach, the results reveal that after implemen-
tation of this policy, mandatory CSR reporting rms show substantially higher green
innovation performance than non-CSR reporting rms. We further nd that this effect
is stronger for rms located in areas with high environmental enforcement intensity, for
state-owned enterprises and for those with higher levels of media coverage. Moreover, we
make a nuanced investigation on whether the media coverage is laden with a negative or
positive tone, and nd that both negativeand positive coverage strengthen the relationship
between mandatory CSR disclosure and green innovation.
Introduction
Concern has been growing substantially over rm
behaviours that cause serious social and environ-
mental problems (Teeter and Sandberg, 2017).
Corporate social responsibility (CSR) reporting,
a business and policy response to these concerns,
is becoming an important business practice and
gaining the attention of the regulatory authorities
(Chen, Hung and Wang, 2018). For example, the
European Union (EU) adopted a new Directive
(2014/95/EU) that requires large European rms
to disclose their social and environmental impacts,
and requires all member states to transpose this
Directive into their national legislation by 6 De-
cember 2016.
This workwas supported by the National Natural Science
Foundationof China (Grant No. 71974205) and the Ma-
jor Project of the National Natural Science Foundation
of China (Grant No. 71991483).
Mandatory CSR disclosure, one type of CSR
reporting, is a policy tool/regulation which forces
rms to publish transparent and non-selective
CSR information, including environment-related
information. More and more economies, such as
the EU,China and the USA, have adopted manda-
tory CSR disclosure regulation (KPMG, 2017) in
the hope that it will improve the CSR information
available to stakeholders, and in turn stakeholders
may become more effective in rewarding responsi-
ble corporate activities or imposing sanctions on
irresponsible activities (Jackson et al., 2020).
However, the existing empirical evidence re-
mains inconclusive and provides contradictory
ndings on the effects of mandatory CSR disclo-
sure on rm behaviour and outcomes. A small
strand of studies shows that mandatory CSR dis-
closure has an impact on rm behaviour and out-
comes such as nancial performance, social ex-
ternalities and equity management (Chen et al.,
2018; Wang, Cao and Ye, 2018). Meanwhile
© 2022 British Academy of Management and Wiley Periodicals LLC. Published by JohnWiley & Sons Ltd, 9600 Gars-
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Evidence from Chinese Listed Firms 577
another strand suggests that such disclosure has
little inuence on rm performance (Gong, Xu
and Gong, 2018). We posit that the conicting
ndings may be due to the nature by which this
policy compels rms to disclose CSR information
but does not require anybehavioural changes. This
complex nature mayresult in symbolic practices to
meet minimum requirements rather than substan-
tive behavioural changes to solve CSR problems
fundamentally. Therefore, the impact of manda-
tory CSR disclosure on rm behaviour, especially
substantive behaviour, remains unclear. We con-
tribute to this debate by focusing on a substan-
tive environmental practice(i.e. green innovation),
because a core element in mandatory disclosure
lies in environment-related information disclosure
(Chen et al., 2018). Thus, our rst research ques-
tion is: How does mandatory CSR disclosure inu-
ence green innovation?
Green innovation refers to the invention of
new designs and the creation of novel products
and processes to reduce environmental pollu-
tion (Berrone et al., 2013). Although there is a
broad consensus on the value of green innovation
in terms of providing solutions to sustainable
environmental problems, it is risky in terms of
knowledge spillovers and nancial returns. These
characteristics result in rms having few or no
incentives to engage in green innovation unless
they are compelled or nudged to do so (Borghesi,
Cainelli and Mazzanti, 2015). Drawing on the
institutional view of legitimacy theory, we argue
that mandatory CSR disclosure regulation is an
example of recognized institutional patterns that
makes the reporting rms exposed to and recog-
nize the beliefs and expectations of key external
stakeholders, in turn driving them to overcome
strategical operational challenges and engage
in more substantive environmental practice (i.e.
green innovation) to respond to institutional pres-
sures. We thus predict that the rms mandated
to provide CSR reports (mandatory CSR report-
ing rms) will engage in higher levels of green
innovation than those which are not under such
disclosure (non-CSR reporting rms).
While institutional research emphasizes coer-
cive isomorphism (DiMaggio and Powell, 1983),
it might simply trigger apathetic and cosmetic
practices, such as the adoption of environmen-
tal management systems (e.g. ISO 14001) (Delmas
and Toffel, 2008). That said, coercive isomorphism
could not explain the extent to which greeninnova-
tion as a substantive environmental practice may
be a viable option to deal with external pressure
(Berrone et al., 2013). Different fromisomorphism
effects, recent studies show that rms’ responses
to external pressure by adopting green innovation
vary according to their internal characteristics and
external institutional environment (Berrone et al.,
2013). Therefore, we further posit that among the
factors related to rm characteristics and the in-
stitutional environment, those that reinforce mon-
itoring mechanisms will strengthen the legitimacy
pressure of mandatory CSR reporting rms, which
drives them to engage in green innovation more
due to added pressure on legitimacy. The second
research question is thus: How do factors that rein-
force monitoring mechanisms set the boundary con-
ditions on the effect of mandatory CSR disclosure
on green innovation?
By leveraging the implementation of China’s
mandatory CSR disclosure policy in the year 2008,
which mandates a subset of Chinese listed rms to
publish their standalone CSR reports,we employ a
quasi-natural experimental design to test our the-
oretical predictions.
Our research makes three contributions to the
existing literature.Firstly, our study contributes to
the CSR disclosure literature from two perspec-
tives. One is that previous studies focus largely on
voluntary CSR disclosure,1with onlya few paying
attention to mandatory disclosure (Christensen,
Hail and Leuz, 2019). The other is that those stud-
ies that examine mandatory CSR disclosure shed
light only on its effect on rm behaviour and out-
comes other than green innovation (e.g. earnings
management and protability) (e.g. Chen et al.,
2018; Wang et al., 2018). Therefore, we strengthen
this stream of literature by extending mandatory
CSR disclosure to the context of a substantive en-
vironmental practice (i.e. green innovation).
Secondly, we contribute to the legitimacy the-
ory by examining how a mandatory policy tool
that compels information disclosure affects a
substantive environmental practice. Our ndings
reveal that the policy mandating information
disclosure indeed promotes green innovation.
Drawing on the institutional view of legitimacy
theory, we argue that although mandatory CSR
disclosure does not require changes to specic
1Voluntary CSR reporting is a proactive practice by
which rms strategically and selectively report informa-
tion (Nekhili et al., 2017).
© 2022 British Academy of Management and Wiley Periodicals LLC.
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