Peer Effect of CSR Disclosure: Applications of Textual Analysis

This thesis concerns itself with the topic of corporate social responsibility disclosure (CSR disclosure) and peer effects. Borrowing from the stakeholder theory and the resource-based view, engaging in CSR activities generates firms a higher reputation in the product and labor market (Freeman, 1984), which can be seen as a competitive advantage contributing to enhanced firm value (Barney, 1991). While the merits of CSR have been criticized by some neoclassical economists, led by Friedman (1970), who argue that CSR is a waste of time for firms to search for optimal CSR strategy. This paper posits that firms are embedded in a market so that they can fit themselves into the optimal CSR disclosure policy by mimicking the practices of other successful pioneering firms. Arguably, this peer effect can significantly reduce the time and resources that firms would otherwise spend on this activity, thereby alleviating the concerns raised by the CSR opponents Using textual analysis of CSR reports from all US-listed firms between 2000 and 2021, this thesis first examines the presence of peer effects in CSR disclosure decisions. The results from the logit model reveal a strong positive relationship between peer disclosure and a firm’s decision to disclose CSR activities. To mitigate endogeneity concerns, the study employs both instrumental variables (IV) and propensity score matching (PSM) approaches, both of which provide robust evidence supporting the adoption of voluntary CSR disclosure by a focal firm when its peers disclose. Furthermore, the thesis reveals that the peer effect on CSR disclosure is particularly pronounced in industries characterized by high competition and in sectors with significant environmental impact. The thesis also extends its scope to explore the impact of peer firms' CSR report complexity on that of the focal firms. A fixed-effects linear model uncovers a negative relationship between the complexity of peer firms' CSR reports and the readability of focal firms' reports. This indicates that as peer firms produce more complex CSR reports, focal firms may strategically opt for clearer, more accessible disclosures, potentially as a means of differentiation in the market. Finally, the study examines how product market competition influences the similarity of CSR reports among firms. It finds that increased competition generally leads to greater differentiation in CSR disclosures, as firms seek to distinguish themselves from their competitors. However, in highly polluted industries, a different pattern emerges that is higher competition is associated with greater similarity in CSR reports. This suggests that in these vi industries, regulatory pressures and the need to maintain legitimacy drive firms to adopt similar CSR practices, leading to more uniformity in their disclosures. Overall, this thesis contributes to the understanding of CSR disclosure by highlighting the significant role that peer effects play in shaping firms' CSR disclosure strategies. It provides robust empirical evidence of peer effects on CSR disclosure decisions, and it sheds light on how competitive dynamics and industry characteristics influence the adoption and presentation of CSR disclosure.