Does CSR Report Tone Affect Stock Price Responses to Corporate Violation Announcement: Evidence From China

ABSTRACT This paper investigates the influence of corporate social responsibility (CSR) report tone on stock price reactions surrounding the announcement of corporate crises. Although prior research highlights the importance of CSR tone in shaping investor responses, its role during crisis events remains ambiguous. Drawing on a sample of Chinese‐listed firms penalized for violations between 2016 and 2022, we find that a more positive CSR tone is associated with lower abnormal returns following the disclosure of such violations. This indicates that a disconnect between a firm's socially responsible image—projected through optimistic CSR disclosures—and its actual misconduct undermines investor trust, resulting in adverse stock price movements. Our findings are robust across alternative variable measurements, empirical models, and controls for endogeneity. Moreover, the impact of CSR tone on stock price responses varies with the firm's information environment and stock liquidity. Specifically, CSR tone exerts a stronger influence in firms with weaker information environments and higher stock liquidity, and a weaker influence in firms with stronger information environments and lower liquidity. These results suggest that both information transparency and market liquidity amplify the effect of CSR tone on investor reactions to crisis announcements. Overall, our study provides empirical support for the impression management hypothesis.