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Mandated Social Disclosure: An Analysis of the Response to the California Transparency in Supply Chains Act of 2010

Author

Listed:
  • Rachel N. Birkey

    (Illinois State University)

  • Ronald P. Guidry

    (Illinois State University)

  • Mohammad Azizul Islam

    (Queensland University of Technology)

  • Dennis M. Patten

    (Illinois State University)

Abstract

In this study, we examine investor and firm response to the California Transparency in Supply Chains Act (CTSCA) of 2010. The CTSCA requires large retail and manufacturing firms to disclose efforts to eradicate slavery and human trafficking from their supply chains and is a rare example of mandated corporate social responsibility disclosure. Based on a sample of 105 retail companies subject to the CTSCA, we find a significant negative market reaction to the passing of the CTSCA. Furthermore, we find that the reaction is significantly more negative for larger firms and companies facing greater supply chain risks (apparel and footwear retailers), suggesting that investors place a negative value on exposure to legitimacy threats in the social domain. With respect to company disclosure response, we document relatively high compliance with the legislation, although we also find that the disclosure response appeared to be more symbolic than substantive in nature. Finally, our analysis indicates that both disclosure choice and disclosure extensiveness were significantly higher for the high-supply chain risk companies, suggesting that the response was influenced by concerns with strategic legitimation. Overall, the limited quality of disclosure suggests that, without additional rules and guidance, mandates alone may not lead to meaningful social disclosure.

Suggested Citation

  • Rachel N. Birkey & Ronald P. Guidry & Mohammad Azizul Islam & Dennis M. Patten, 2018. "Mandated Social Disclosure: An Analysis of the Response to the California Transparency in Supply Chains Act of 2010," Journal of Business Ethics, Springer, vol. 152(3), pages 827-841, October.
    • Handle: RePEc:kap:jbuset:v:152:y:2018:i:3:d:10.1007_s10551-016-3364-7
    DOI: 10.1007/s10551-016-3364-7
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    6. Fayez A. Elayan & Kareen Brown & Jennifer Li & Yijia Chen, 2021. "The Market Response to Mandatory Conflict Mineral Disclosures," Journal of Business Ethics, Springer, vol. 169(1), pages 13-42, February.
    7. Hao Yang & Laura Le Luo & Asit Bhattacharyya, 2021. "Mandatory Environmental Reporting in Australia: An In‐depth Analysis of Quantity and Quality," Abacus, Accounting Foundation, University of Sydney, vol. 57(4), pages 737-779, December.
    8. Manavalan Ethirajan & Thanigai Arasu M & Jayakrishna Kandasamy & Vimal K.E.K & Simon Peter Nadeem & Anil Kumar, 2021. "Analysing the risks of adopting circular economy initiatives in manufacturing supply chains," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 204-236, January.
    9. Lopatta, Kerstin & Tideman, Sebastian A. & Scheil, Carolin & Makarem, Naser, 2023. "The current state of corporate human rights disclosure of the global top 500 business enterprises: Measurement and determinants," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 96(C).
    10. Bruce Pinnington & Amy Benstead & Joanne Meehan, 2023. "Transparency in Supply Chains (TISC): Assessing and Improving the Quality of Modern Slavery Statements," Journal of Business Ethics, Springer, vol. 182(3), pages 619-636, January.
    11. Katharina Hombach & Thorsten Sellhorn, 2019. "Shaping Corporate Actions Through Targeted Transparency Regulation: A Framework and Review of Extant Evidence," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 71(2), pages 137-168, May.
    12. Lyndie Bayne & Juliana Ng & Marvin Wee, 2022. "Supply chain disclosure: stakeholder preferences versus current practice in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3875-3911, September.
    13. Kunz, Nathan & Chesney, Thomas & Trautrims, Alexander & Gold, Stefan, 2023. "Adoption and transferability of joint interventions to fight modern slavery in food supply chains," International Journal of Production Economics, Elsevier, vol. 258(C).
    14. Li, Yanqiong & Wang, Xiongyuan & He, Jie & Chan, Kam C., 2023. "Supply chain risk disclosure and seasoned equity offering discount," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    15. M. Tina Dacin & Jeffrey S. Harrison & David Hess & Sheila Killian & Julia Roloff, 2022. "Business Versus Ethics? Thoughts on the Future of Business Ethics," Journal of Business Ethics, Springer, vol. 180(3), pages 863-877, October.
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    17. Edward Wray-Bliss & Grant Michelson, 2022. "Modern Slavery and the Discursive Construction of a Propertied Freedom: Evidence from Australian Business," Journal of Business Ethics, Springer, vol. 179(3), pages 649-663, September.

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