10-K Disclosure of Corporate Social Responsibility and Firms’ Competitive Advantages

Date
2019-10-07
Authors
Connon, James
Ling, Zhejia
Watanabe, Olena
Wang, Qian
Watanabe, Olena
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Altmetrics
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Accounting
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Accounting
Abstract

In this paper, we offer evidence that disclosure of corporate social responsibility (CSR) in the 10-K provides information about firms’ competitive advantages. We create a textual measure of CSR disclosure that aggregates CSR keywords found in 10-Ks. We measure firms’ competitive advantages by using levels of and persistence of industry-adjusted gross margin; selling, general, and administrative (SG&A) margin; and operating margin. We first show that 10-K CSR disclosure intensity is associated with lower levels of gross margin but higher SG&A margin. We then observe that firms with more CSR keywords in their 10-Ks maintain more persistent above-industry-median gross and operating margins. Upon sorting our full set of 10-K CSR keywords into three subcategories (philanthropy, business practice, and product), we find that the intensities of disclosure in these CSR subcategories have associations with varying competitive advantages.

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This accepted article is published as Cannon, J. N., Z. Ling, Q. Wang, and O. V. Watanabe. 2019. 10-K Disclosure of Corporate Social Responsibility and Firms’ Competitive Advantages. European Accounting Review 28(6):000–000. Doi: 10.1080/09638180.2019.1670223. Posted with permission.

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