CSR Disclosures and Agency Frictions: Evidence from a Shift from Mandatory to Voluntary Corporate Philanthropy Disclosures

We examine whether mandatory corporate social responsibility (CSR) disclosures reduce agency frictions associated with managers' decisions regarding CSR activities. We focus on the 2013 shift from mandatory to voluntary corporate philanthropy disclosures in the United Kingdom (UK). Using a difference-in-differences approach, we find that, relative to a sample of United States firms, UK firms (i) reduce corporate philanthropy disclosures and (ii) increase corporate philanthropy donations in the voluntary period. We also show that post-regulation, the increase in donations is stronger for firms with CEOs more connected to charities and that both the increase in donations and decrease in disclosures are stronger for firms with larger boards. Moreover, in the voluntary period, UK firms that decrease corporate philanthropy disclosures increase donations and pursue more self-serving donations for managers. We provide evidence on the role of mandatory CSR disclosures in reducing CSR-related agency frictions by facilitating the monitoring of discretionary CSR activities.